Where now for the spx?

It appears that the head and shoulders pattern we reported as dead and buried on Tuesday 14th July, is still in play. The major test is whether we can break and consolidate above the midpoint between the respective peak points on the head and shoulders of the formation. We calculate this to be 944.7 (we are testing this area as I type):



Should we fail to close/consolidate above 944.7 we can expect a move lower, quite possibly back to our 200-day MA (currently at 867.8) in the coming weeks.

The Gold chart below illustrates a near identical scenario:



Here we can see the head and shoulders formation quite clearly. The retest of and subsequent failure at the midpoint between the respective peaks of head and shoulders, presages a retrenchment below the pattern's neckline.

Using this as our rationale, we have effected a small short position. This might prove somewhat premature as neither failure below nor consolidation above our 'midpoint' have yet to transpire. The head and shoulders pattern is indicative of bearish sentiment however, and so I feel vindicates us somewhat in our early entry.

Happy trading all!