Possible Head and Shoulders Top Forming Part 2

Two weeks later and the pattern continues to play out. We dipped down to test the neckline again, which was expected, at which point the media and everyone else jumped on the head and shoulders play (usually a sign that it won't pan out). I think it still has an outside chance to, though.

Here's what would need to happen...the market would need to stay below $930 (the previous right shoulder high), and once again it would need to dip below $880. With the neckline now changed, the target is actually lower in the $810 range.

The other option is that the market topped today as the former neckline's retest and we continue down to play out the original head and shoulders pattern I posted on the previous post 2 weeks ago (Absolute Strategies: Possible Head and Shoulders Top Forming)

Possible Head and Shoulders Top Forming

I have put most of the explanations on the attached chart, but the market may be trying to form a head and shoulders topping pattern. It is still too early to tell, but wanted to get it on the radar. It should take a few more weeks before confirmation.

If we fall below $880 again, where there is significant support dating back 6 months+, then this chart may be very valid. I have put in blue dotted lines showing the possible path the market could take to validate this pattern.

Ideally the market will fall below $880 and come back to retest the "neckline" trendline at which point would be a very high risk reward short around $890 with a stop above $900 and a target of $830.

Stay Tuned. You can click on the title link to see how the pattern progresses in real time.

Head and Shoulders and Elliott Wave Target 1-24-08

- The link at the bottom of this email links to a realtime annotated chart. It is the original link from the email, but then obviously only had data thru the 24th of Jan 2008, which I have captured in the chart below. It will work indefinitely with updated prices.

Email sent to a friend Jan 24 2008

Looks like 5 waves down from December completed (unless my count is wrong or this wave will extend) and the head and shoulders top minimum target has been met this week (see chart). The move down from the early Dec top has taken ~28 trading days and I suspect either a 38.2, 50, or 61.8% time retrace on that (10, 14, or 17 days). The move up today was big...and if I am right about the 2+ weeks of bull ahead, then this market could easily see $1400 again. But...

A typical rule of a correction leg is that a retracement will retrace to the 4th wave of one lesser degree, which happens to sit right in Fibo territory right below the neckline of the head and shoulders (the jumbled mess between the fibos labeled as 4.). Also, a rule of elliott is the IV. wave (started yesterday) cannot impede on the first leg of the same degree (which is at $1406). So, 4 really good reasons for resistance by $1400. Unless things change, this is where I am going to lay on THICK puts in a 3 phased approach to catch wave 5 down...First trying to pick close to the top to "anchor" (most likely around the first Fibo), Second once the market rolls over and I get confirmation of a short term trend change and/or a move south below the fibos, and three once the market starts falling hard again and/or when the low of $1280 is taken out. My stop loss will be above the neckline above the $1425 61.8% fibo which is ~4% risk with big time reward.

http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=2&mn=0&dy=0&id=p68242532351&a=128703199

Peace!