S&P 500 Daily - Head and Shoulders Patterns

Head

TARGET

Right
Shoulder

I was dubious of this inverted H&S at

the time because of the “small” nature Left
of the right shoulder. This was naïve Shoulder
thinking, as the best H&S patterns will
likely be the ones that are more difficult
to identify. This particular “set up” hit
the target perfectly.

A H&S topping pattern has been

triggered here. The target objective is
below 900. Some sort of retest of the
neckline should be expected, but the
market should not be able to settle
much above 1050 if this is to be a valid TARGET
pattern.
Right
Shoulder

Left
Shoulder

Head

Andy’s Technical Commentary__________________________________________________________________________________________________

 S&P 500 Daily - Head and Shoulders EVERYWHERE….

Head The head was

another H&S
itself.

Right
Shoulder

Left
Shoulder

Right
Shoulder

Left This chart should illustrate why

Shoulder it’s important to consider this
special pattern. It has shown up
enough times to make it a very
relevant phenomenon.

Head

Notice the way part of the

head was actually a H&S
pattern itself. This is not
uncommon.

Andy’s Technical Commentary__________________________________________________________________________________________________

 Dow Jones Industrial Average ~ Monthly Log Scale
Head

Left
Shoulder Right
Shoulder

TARGET

As my friend and long time reader, Ben22 (aka: “McFearless”), has been
recently pointing out, there is a MUCH larger and ominous Head and Shoulder
in the works. This is the DJIA over the last few decades. If this were to play
out, it would target somewhere below 4,000. It’s probably worthwhile to note
that while 4,000 would be a horrible outcome, it’s not quite as bearish as some
of the predictions calling for a DJIA below 1,000. These sorts of larger scale
patterns MUST be charted on a log scale.

Andy’s Technical Commentary__________________________________________________________________________________________________

 Dow Jones Industrial Average ~ Monthly Log Scale
<B>

- II -

<A> -I-

- IV -

- III -

-V-
<C>
Using the EWI (Prechter) proposed Wave count, it’s easy to see how we could see
sub-4000 on the DJIA. A classic 161.8% of -I- = -III- (log scale) would accomplish
this feat. Still, with that stated, it would seem to be a bit of a “reach” to suggest
targets as low as 1,000, even ASSUMING this bleak EWI wave model is the correct
one.

Andy’s Technical Commentary__________________________________________________________________________________________________

 Dow Jones Industrial Average ~ Monthly Log Scale

<B>

(A)
- II -
(C)

- IV -
<A> (B)
-I-
“First Wave” extensions look
like “wedges” - III -
-V-
<C>

As bearish as his predictions are, even Robert Prechter (and EWI) would have to
admit that this wave count is equally possible. There is no way to dismiss a “first
wave” extension Cycle C-Wave. This would mean that the “dreaded” Primary-3 wave
(“P3”) might only be 61.8% or 78.6% of the Wave -I-. Again, this would be awful for
investors, but nowhere near as bleak as some predictions.

Note: The wave counts on this page and the previous page are NOT my
preferred counts. I have merely taken some time to address these very
popular models and explore some realistic outcomes. Waves often end
up playing out differently than can be imagined, EVEN when one has
the correct count!

Andy’s Technical Commentary__________________________________________________________________________________________________

 S&P 500 Sep e-Minis ~ (180 min.)

“y” REPRINTED from 6/27/2010

b
-2-

-1-
“x”
-2- c
-4-

b
-3-
-1- a

-4-
-5-
a

a
-3-

-5- b
c
“w”
c
“y”
(A)

This would also be a completely legitimate account of the price action. I favor the previous slide, though, because it
calls for more price action. If there’s a way for a wave to last longer, then it’s probably best to assume it will. What’s
interesting about this model is that it would SCREW everyone counting on the Head and Shoulders scenario. This
price action would break the neckline and trigger the proposed H&S top, only to disappoint all the new shorts as we
would likely be completing an Intermediate (A) Wave.

Andy’s Technical Commentary__________________________________________________________________________________________________

 S&P 500 Sep e-Minis ~ (120 min.)
“y”
“Y” Wave Targets:
1000 for 78.6% of “w” = “y”
b 965 for 100% of “w” = “y”
931 for 61.8% of “w” measured from the “w” conclusion.

“x”
c

a b?
a?

b
c
“w”

c?
“y”
(A)

The move down from the proposed “x” wave has been difficult to decipher. Because of the way it developed in the
beginning, it remains a “reach” to label the move an “impulse” lower, so I’m stuck with this sort of wave model.

Andy’s Technical Commentary__________________________________________________________________________________________________

 S&P 500 Sep e-Minis ~ (60 min.)
“x”

-2- This is a “closer” view of the last several days of price action. There is certainly a
way to interpret this move down as an overall impulse (it would be a fifth extension),
but for now, I will stick with this more straightforward accounting. The sideways
congestion in the MIDDLE of the pattern must be reconciled in some way.
-1-
-4-
-a-

-3-
-c- b
-5- -e-
a

-d-
-b-

-2-

-4-
“Y” Wave Targets: -1-
1000 for 78.6% of “w” = “y”
965 for 100% of “w” = “y”
931 for 61.8% of “w” measured from the “w” conclusion. -3-

-5-
c
“y”??

Andy’s Technical Commentary__________________________________________________________________________________________________

 S&P 500 Sep e-Minis ~ (60 min.)
“x”
This would be my best guess at fitting the move into an “impulse.” This particular
-2- count carries with it certain “implications.” The area around 1075 would be serious
resistance on any rebound because the fourth wave should NOT be exceeded during
2 a “fifth extension.”

-1- 1
4
a

3
c -4-
5 e
1070s
-3-
d
b

4
1

5
-5-
a

Andy’s Technical Commentary__________________________________________________________________________________________________

 S&P 500 Sep e-Minis ~ (240 min.)
To quote Crash Davis’ advice to “Nuke” LaLoosh in Bull Durham: “Don’t think
meat.” Sometimes it’s best to just pull back and observe the market for what “it is.”
This is a downtrend that appears to have triggered a large scale head and shoulder
top. The trading bias has been bearish and must remain so. I’m nervous about a
sharp bounce back due to excessive short term negativity, which is why I remain only
20% of Max short position. Highlighted below are short and medium term resistance
levels for the Sep Mini futures. Breaks of these points should lead to “pivots” higher.

1130

1075

1044

Andy’s Technical Commentary__________________________________________________________________________________________________

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