Dark clouds looming

Evening traders/investors,

Recent selling pressure has been scaring the markets these couple of days. I have been quite bullish on equities for some time already, and I do not wish to drop my stance unless the chart tells me so. To start off, take a look at the video below. As most of those who regularly come here will know, some of my influence in chart-reading is from Oscar Carboni – a trader from the US. Watch the video below of Oscar presenting a case of bearish head and shoulders patterns looming all over the american indices.

http://www.youtube.com/watch?v=NdyAkVSnh8k&list=UUez8uA1o_fDYsrSf4auWSjg&index=1&feature=plcp

First off, I will follow Oscar and look at the STI’s movement in May for the last several years. The saying does hold up quite well. Since history is an important aspect of technical analysis, what we are seeing on the chart does indicate to us that we should look for selling pressure in the months ahead.

Going back in history, I want us to look at a chart I uploaded in January this year: https://technicalanalysistalk.files.wordpress.com/2012/01/sti2.png

As early as then, I saw a massive head and shoulders looming. I wanted to wait for more time to see what the STI wanted to do first. Now, the eleventh day of May, the right shoulder of the unconfirmed head and shoulders has filled up quite nicely. In fact, if you look back at my last 2 or 3 posts on the index, I did signal a breakout – now with hindsight I can say it was a weak breakout – which is now deemed a false one. So the STI is right back inside the right shoulder.

Go back to the video by Oscar above. Is is not interesting that head and shoulders patterns are found in american indices too? Yes, the time frame in the video is totally different from the head and shoulders I am touting in the STI. However, if the US indices are to break down from the head and shoulders patterns, then the STI should drop down to as low as the 2600 region. The 2600 region is where major support can be found.

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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