Heads and shoulders

Hello all,

I have a chart of the STI for you all today. On the chart, you will see many head and shoulders patterns, and the opposite – inverted head-and-shoulders as well. Almost all of them are considered small patterns, or even smaller than small – micro, mini, whatever name you want to give. The latest development I see on the chart of the STI is a potential head and shoulders pattern. The left shoulder actually contains a smaller head and shoulders pattern that I posted about. That pattern broke downards, only to stage a powerful reversal to send the STI to record post-crash levels. This potential pattern, once confirmed, will attract my attention as it is of good size. Basic technical theory will teach you that such a pattern should be considered bearish. I believe that head and shoulders can also mean an upward breakout. The key levels are the neckline, and “the head”.

Please do not get carried away yet. I am a strong believer of waiting for patterns to confirm before acting on patterns. But for now, I am going to favour the bullish camp for two reasons: one, I have already indicated in past posts on my general bullish stance; two, seeing how the STI is in an intermediate uptrend, I can only expect more upside while thinking of the age-old adage – the trend is your friend.

 

In the next chart, you will see two parallel channels. One is a parallel channel with a centreline, the second, probably the “famous” one, is in black. Either way you see it, we are in an uptrend, so naturally I will be a bull and if the head and shoulders pattern does confirm, I would be expecting upside, unless a downward breakout occurs.

I have just realised though, that the potential pattern is at the top of both channels, which is a technical sell signal. I can only conclude that true to my last post on indices, the markets are at a crucial point now. Remember, channels will end some time.

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

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