Saturday, July 4, 2009

Head Shoulders Suggests Lower Levels; July 4, 2009

Happy 4th of July all! I'm gonna celebrate America's birthday with a movie and some tri-tip grillin. I hope everyone has a nice enjoyable holiday.

As for the markets, they have not been clear lately but a massive head-n-shoulders pattern has formed on the above 8hr S&P futures chart above. A break of the 885 necklilne will open up the the market to a fall to the 845 level which is a prior congestion area. I added a little to my existing covered call S&P (SDS) strategy on Wednesday, once I saw the market topping in the afternoon. I am about half short of the full position I'd like to be and might add short on any large rallies toward the right shoulder area at 928.

For the head-n-shoulders pattern to hold, the market must stay below 958, but a strong break of 930 on big volume and expanding NYSE breadth would probably signal that 958 will be broken in the near future.

I have half of a full position short the S&P.

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