Potential head and shoulders topping patterns in US stock markets
The E-mini S&P recovery throughout February to April revisited November/December highs at 2105/2110, as you can see in the daily chart below. We now have a potential head and shoulders topping pattern forming.
We have been holding good support at the neckline and first Fibonacci support at 2035/31 and in fact saw a good bounce off this support at the start of this week. As long as this level holds there is no confirmation of the bearish pattern and we could continue to trade sideways for a significant period. The obvious immediate resistance to watch is at 2105/2110.
A break below 2030, confirmed with a close below this level, would signal the topping pattern has been completed. Downside targets would then be 2005/2000 and more important support at 1990/1985. However, the measured target is as far as 1960/1955.
It’s a similar picture for the E-mini Dow Jones. Looking at the weekly chart it is clear that the general trend over the past two-and-a-half years has been sideways in a wide 3000-point range from the 2014 lows at 15,276-15,285 up to the all-time 2015 high at 18,334.
In the short term, the daily chart again shows a potential head and shoulders pattern as you can see below. The important neckline support lies at 17,500/450. This was tested at the start of this week but we bounced very sharply off 17,421.
If we do see a clear break below 17,400 this will confirm the completion of the negative pattern. The measured target is 17,100/17,000. This is very strong support for other reasons, again as you can see in the daily chart, namely Fibonacci support at 17,078/17,062 plus the 200 and 100-day moving averages at 17,060 & 17,025.
The E-mini Nasdaq weekly chart has a more important longer-term potential head and shoulders pattern. I say more important because the pattern has been forming for a much longer period of time.
We are quite a way off from the completion of the right shoulder, if indeed it forms at all. It is not until we see a break below the neckline at 3830/3800 that the pattern would be confirmed. Something to watch in the weeks ahead!
Technical Analyst & Trader
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