Train coming. Get off the tracks.

090716induFor whatever reason (and reasons are hard to find) the head and shoulders party has been postponed.  Good trading tactics require that you scale out of some index shorts, which we are doing.  The reason for scaling out is that a Basing Point has been violated.  Note that the filter stop has not been touched, and may not be.  But in times of  rabid cross currents tactics should be adjusted.  We will address the larger implications of this in a later letter.

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    What about the notion of a broadening top?


    Professor, at what point is the head and shoulders definitely negated? I tried going back to the chapters pertaining to head and shoulders in your “bible” and could not find reference to it a particular rule. Would it be if stocks go higher than the highest point of the head – ie the closing price on the 11th June? Also, I have been trading Asian equities for over a decade and often I get direction from the US markets. Recently, though, it feels I should be using certain Asian markets as my leading indicators. Korea, for example, never really showed signs of wavering and has just broken to new highs. Does anyone have an objective technical view on the KOSPI200 chart? I would be interested in the views of someone that DOES NOT trade Asia like me. It could give a good clue as to what is ahead.


    Dear Prof,

    Just to follow up too…if a massive kilroy is forming….is 8800 the neckline or 9100? or is the neckline downward sloping? would a 3% penetration be considered authoritative here? And technically speaking…would this constitute a primary trend change if the Transports confirm if we make inference to classical dow theory? (at least for the short term…ie the primary swing is bullish). This is all happening when fundamentals are bad but are being hyped as being “less bad”. Have no particular bias long or short but just like to be right….

  4. alain

    have troubles to continue to see the Kilroy bottom. As per 9th Ed. symmetry in time is required.

    SPY could not hold its high yesterday and closed negative.
    We are not really higher than July 1st on the SPX trading vehicle yet. The Q’s seem to setup a broadening pattern.
    Others positions made a Hanging Man Candle.

    Market seems to react extremely nervous on any news. It’s sudden up-move may have forced option sellers buy back positions. The days after expiration usually is a turning point. Seasonality turns from positive to negative from next week. In July, Indu never gained over 9% over the last 60 years.

    Analyzing the bull case, supposing the June/July down channel was a flag, still a test of the breakout should be the case. 9th Ed. states that such channel breakout is not “…conclusive evidence of a change in trend, and does not justify long commitments.” Didn’t we have the same situation in Dec08/Jan09?

    My shorts (except financials) did not hit the stop loss yet.

    Shall we give the benefit of double to the market till Monday?


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