Head & Shoulders Top? Careful!

George Brooks |

There is a Head & Shoulders Top Formation (H&S) in the Nasdaq Composite. For non-chartists, that is a pattern in the trading that traces out, (you guessed it) a left shoulder, a head, and a right shoulder, sans eyes, ears, nose and mouth.

The projected technical damage here would be down to 3,550 (-12.4%), assuming it breaks decisively below 3,950 first.

A word of caution. These patterns can be a giant head-fake with the index (or stock) suddenly reversing to the upside crushing short sellers. Such a head-fake occurs more in early stage markets, like it did with the DJIA in mid-July 2009 with the DJIA at 8,359.

This one looks a little to obvious. Be careful. A lot of damage has occurred in the Nasdaq Comp. already. Its daily pattern indicates steady selling pressure which will need some kind of selling climax to reverse, but not from as far down as 3,550.

This H&S pattern does not exist in the DJIA, S&P 500, or Russell 2000 indexes.

TODAY:

We have a bitterly contested tug of way here between bulls and bears. Thursday’s upmove gives the bulls a slight edge, but they must break decisively above the 16,600 (S&P 500: 1,900) level to give them a win.

The bears need a drop below 16,300 (S&P 500: 1,860) to tilt things in their favor.

All this assuming no major bad news like a Russian invasion of Ukraine.

Support: DJIA: 16,517; S&P 500: 1,872; Nasdaq Comp.: 4,043

Resistance: DJIA: 16,604; S&P 500: 1,885; Nasdaq Comp.: 4,076.

Head & Shoulders Top NASDAQ ? Carefull !

Investor’s first read – Daily before the open

DJIA: 16,550

S&P 500: 1,875

Nasdaq Comp.: 4,051

Russell 2000: 1,097

Friday, May 9, 2014 9:05 a.m.

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Sell in May and Go Away ?? Not so fast !

That’s a cute little jingle and the media/financial writers enjoy these things, but they can be misleading. May has offered a number of timely exits, but I don’t buy the “stay away” part, clearly not until November.

You are already seeing articles about this seasonal phenom in the press and newsletters. Essentially, it is the backend of the “Best Six Months”* to own stocks (November 1 to May 1). Obviously, the message here is of the two six month periods, May to November is the worst for stocks.

This is true, but as I have noted with the Best Six Months, a lot can happen in the interim.

This bromide can’t be taken as a “given.” Of the 26 years I studied a “top” occurred in May on 10 occasions ranging from May 1 to May22. Two occurred in June and two in July. No meaningful top occurred in 12 of the years studied.

On far too many occasions over the last 26 years a May top was followed by a decline, but within months (well before Nov. 1) the market rallied sharply. I see it more as a trading opportunity – i.e. “Sell in May,” but be ready to buy back after a plunge.

Studies like this have to have a cut-off date, but are really intended to be accepted with an open mind, i.e. as May 1 approaches, move closer to the exit mentally, and be ready to lock in some profits and raise some cash.

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TECHNICAL ANALYSIS OF 30 DOW STOCKS ( as of 4/25)

At key junctures, I technically analyze each of the 30 Dow industrials then convert that data back into a projected DJIA. I seek a reasonable downside and a more severe downside, as well as a projected upside potential. This is a short-term projection, assuming no significant change in news. My reasonable downside was 16,204 and more severe downside : 16,132. The current upside potential was 16,594, which was momentarily topped last Thursday.

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All five had strong buying at the open then got hit by sellers for the remainder of the day with buying at the close.

Beazer Homes (BZH) Thursday: $19.58

PulteCorp (PHM) Thursday $18.16

Toll Brothers (TOL) Thursday $33.92

KB Homes (KBH) Thursday $15.84

DR Horton (DHI) Thursday $22.23

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RUSSIA/UKRAINE

Russia’s annexation of Crimea was only the first step in President Putin’s power grab. Undoubtedly, he plans to stir additional unrest in sections of Ukraine where Russian speaking people are in great numbers. A military response by Ukraine would give him reason to invade Ukraine to protect pro-Russians and that would have an impact on global markets, which are vulnerable to begin with.

Reportedly, Russia’s V.Putin did some backpedaling Wednesday saying publicly he planned the withdrawal of troops on the Ukraine border and urging of the pro-Russian Ukrainian dissidents to forego its sovereignty referendum Sunday. So far, there hasn’t been any withdrawal, and the dissidents plan to go ahead with the referendum.

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THIS WEEK’s ECONOMIC REPORTS:

A much lighter schedule this week with only one housing related report – MBA Purchase applications coming early Wednesday. Today we get the PMI Services Index and ISM Non-Mfg. Index, For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.mam.econoday.com. Also included is an explanation of each indicator. If you want to know when the next Employment report or any other key report will be released that info is also there under “event release date.”

MONDAY:

PMI Services Ix. (9:45): Apr. was 55.0 , up from mid Mar. 54.2 but down from 55.3 end of Mar.

ISM Non-Mfg. Ix. (10:00): Apr. up to 55.2 from 53.1 in Mar..

Global Mfg. Ix. (11:00): April hit six-month low of51.9 down from March 52.4

TUESDAY:

ICSC Goldman Store Sales (7:45): Down 2.0 pct. in May 2 week ; Year/year plus 2.0 pct. Weather a factor (again)

International Trade (8:30): March’s trade gap narrowed to$40.4 billion from 41.7 billion in Feb.

WEDNESDAY:

MBA Purchase Apps (7:00): Surged 9 pct. In may 2 week

Productivity/Costs (8:30): Dropped 1.7 pct. In Q1 vs. a gain of 2.3 pct. Q4 (weather !)

Consumer Credit (3:00) Non-revolving (Motor veh./ student loan) up $17.5 bn in Mar.; Revolving credit up $1.1 bn. vs. $2.7 bn Feb.

THURSDAY:

Jobless Claims (8:30): Dropped 26,000 to 319,000 for the 4/26 week. Distorted by Easter and seasonality adjustments for whatever good they are.

FRIDAY:

JOLTS –Job Openings/Labor Turnover (10:00)

Wholesale Trade(10:00):

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RECENT POSTS:

Apr 21 DJIA 16,408 A Very Important Week for Stocks

Apr 22 DJIA 16,449 Stock Market – Coiling Spring ?

Apr 23 DJIA 16,514 Today – a Test for the Bulls

Apr 24 DJIA 16,501 Surge in Stocks – Is Economy Next ?

Apr 25 DJIA 16,501 Bears Put to Test

Apr 28 DJIA 16, 361 Pivotal Week – Economy – Stock Market

Apr 29 DJIA 16,448 Market Direction – Still a Toss Up

Apr 30, DJIA 16,535 Sell in May and Go Away ??

May 1 DJIA 16,580 Money Manager Dilemma – Plunge Now

May 2 DJIA 16,558 Big Move in the Offing ?

May 5 DJIA 16,512 Bear Calling Bulls Out

May 6 DJIA 16,530 Wild Ride to Continue

May 7 DJIA 16,401 Techs Headed fo Slaughterhouse - a Huge Selling Climax Buy

Looms for Nimble Trader

May 8 DJIA 16518 Major, Major Bull/Bear Crossroads

*Stock Trader’s Almanac

A Game-On Analysis, LLC publication

George Brooks

“Investor’s first read – an edge before the open”

Brooks007read@aol.com

Investor’s first read, is a Game-On Analysis,LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed as particularized investment advice or as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.

 

 

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