Possible Head and Shoulders Forming on Daily Chart

Click on Chart to Enlarge

I don't have a lot to say and may not for a couple weeks as far as the larger context of what is going on. I always try to give that context because it will help to give confidence when the short-term is set-up favorably with the longer term picture. Also, I assume most everybody is interested in the longer term market picture for investment purposes.

What I do feel pretty strongly about is that the market is unlikely to see new highs above this month's highs. This correction is taking too long and clearly has a different quality (less healthy) to it from a number of angles. However, I really don't know what to expect the next 2 weeks particularly. If a head and shoulders top on the daily chart is forming, then I would expect another decline followed by another tradable bounce up from the neckline area.

If that does occur I think it will be very difficult for most technical analysts to initially view the following/expected decline as part of a new leg down that will take the market to new lows. I assume that most will, yet again, be looking for a "retest" of the lows to form a larger head and shoulders bottom with the Nov and March lows. I would also have that in the back of my mind as a long-shot secondary scenario for the long-term picture.

From a short-term trading perspective, in times like these, when the market is trading in a range and the 20 day moving average is flat, I tend to be willing to take bullish or bearish trades on short-term extremes. As shown in the chart, if the main support at 88ish holds on the next oversold signal, that would probably be a good bullish opportunity. If/once that support is broken by a market close, I don't anticipate myself having any interest in bullish set-ups for a while. Unless the market tips its hand over the next few days, the blog posts the next couple weeks will probably be limited to entries and exits for existing or new trades.

On a separate note, I have created an options trading blog, but am unsure exactly what direction I want to go with it. I used to at times post trades that I was making on this blog, but I have tried to focus solely on equities, on only one methodology, and basically one time frame for the last year. I think that has been beneficial in a number of ways, so I don't want to digress. However, I do believe the next several months may be a great market period for directional options trading, and so I think this could be an exciting time to learn about or participate in the options market. I will probably require some feedback to decide on how to organize that blog, so I may post a poll with a few basic questions, but anyone interested may want to drop a comment with any thoughts.

Pete