Critical Inflection Point!

By: Chris Vermeulen | Mon, May 16, 2016
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This week will very likely be one we look back on as a big inflection point. We will see that the bears are coming back.

It appears the market is forming a head and shoulders topping pattern. There are a couple different ways to trade this pattern depending on the level of skill and aggressiveness.

One can wait for a closing bar below the 'neckline' on the time-frame in which you have identified the pattern. By operating on a closing bar basis you significantly reduce the risk of entering on a 'false' breakout. Entering prior to the close of the bar increases the risk of becoming part of the wick of a reversal candlestick should it close back above 'neckline' support.

Another way is to try and time the right shoulder and short into the bounce or pause just before you think a neckline break is about to occur.

Both, have then pro's and con's, which is better, that all depends on the overall market conditions and that of the trader making the trade.

Take a look a couple charts below so you can see where I feel the stock market is within this pattern.

iViewMarkts.com Bullish Sentiment Indicator: This shows active traders have been very bullish and are just now starting to become bearish. As more short term traders start to sell their long positions and build up short positions this will put downward pressure on stocks and likely start the new trend down.

Bullish Sentiment Indicator

SP500 Bullish Percent Index: This chart is telling us more stocks are starting to form bearish price patterns after being overbought the last couple months.

SPX Daily Chart

Head & Shoulders Pattern: This is the pattern I speak of showing where most traders enter positions for this price pattern. There is always a possibility that the market does not do a Kiss goodbye (retest of breakdown). The strongest moves to the downside will not retest the breakdown in most cases so playing the breakdown I think is vital.

Idealized Head and Shoulders Pattern

SP500 Head & Shoulders Pattern:

SPX Daily Chart 2

That is a quick snapshot of the market and where it stands...

 


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Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

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Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

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He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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