Nasdaq 100, Crude Oil And EURAUD Stage Head-and-Shoulders Patterns

Significant market reversals are the market development that many traders spend the bulk of their time pursuing whether through technical or fundamental staging. However, markets spend far more time committed to trend and/or holding to congestion. That disconnect between probabilities and appetites can often lead to pain. Yet, markets do turn. So, how can we better position ourselves to sort the merely appealing staging of familiar chart patterns to something that better approximates to a genuine shift in the mass’s conviction?

As far as false hopes go, the head-and-shoulders pattern sought after in charts across regions and asset classes may be one of the biggest offenders. Some pursue them doggedly while others may write them off altogether. Personally, I think the pattern is like any other indicator: it should be one part of a more comprehensive analysis. There is great debate over how acute the technical picture has to be in order to qualify this pattern along with a host of criteria. However, I take a more lax view of the pattern as a staging ground for a turn given that I will apply additional factors of ‘authentication’ for a genuine trend. So long as there is a correction from a high (left shoulder), higher high (head), and lower high (right shoulder) with a reasonably clean support (neckline); I will take a closer look. So let’s take a look at three such patterns that qualify in my book – and where they need additional technical or fundamental progress to verify progress.


First up is the tech-heavy US index, the Nasdaq 100. This is generally highly correlated to the Dow and S&P 500, but this particularly buoyant benchmark has gone the extra mile this month to hit a new record high. That high happens to also coincide with what can be considered a ‘head’ on an H&S pattern. With an even shoulder line around 10,125 and the record peak of 10,300, this looks like a loaded pattern. Furthermore, this past Friday, we broke the ‘neckline’ which would be the qualifier for very rudimentary textbooks as the cue for the reversal. I’m not so confident.

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