I have been saying for about two weeks now that the stock market is vulnerable to a swift downside move due to a technical trading pattern called a Head & Shoulders Formation Pattern.What is a Head and Shoulders Formation Pattern?
Check out my chart for a diagram above. Basically a head and shoulders pattern is a move higher, a sell off ( left shoulder), a spike even higher making new highs, a big sell off ( the head ), a return up to the level of the left shoulder, and then a break down ( right shoulder ).
The Dow Jones and S&P 500 are forming head and shoulders on their respective charts. This is something to keep an eye on if you are investing or actively trading the stock market right now.Head and Shoulders are bearish if they are formed and the stock or average breaks down.
Here are examples of two charts I drew up for you to see:
While head and shoulder patterns signify a trend reversal to the downside....a reverse head and shoulder formation is very bullish and signifies a trend reversal to the upside.
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