Stock Market Analysis

Sunday, August 22, 2010

Head And Shoulders on Weekly Chart

The Dow followed up on the bearish continuation pattern last Friday, closing down 57 point, ending the week down 89 points in a relatively sideways week.

On the weekly charts, the Dow is clearly in a congested area all of 2010 and has completed a fairly wide weekly head and shoulders formation, with head on the weekly 200MA, which puts the odds to downside. A head and shoulder formation is a price chart formation with three peaks; a lower peak followed by a higher peak and then a lower peak one again failing to make new highs. It is a powerful bearish formation which started the bear trend back in 2007. The big bear trend of 2007 also started with a strong weekly head and shoulder formation with lower peaks made on the week of 18 July and 14 December and a higher peak made on the week of 11 October.

The current head and shoulder formation isn't as sharply formed as the one back in 2007 so its still too early to tell if it will have the same effect but for now, the odds definitely favor to downside. This is also supported by the rapidly declining economic numbers which seems to say that the economy is not yet ready for self-sustenance. However, for now, the intermediate bull trend remains intact as long as the 10,000 points level hold up which is providing immediate support.

For now, the Dow remains a short term bear trend, intermediate bull trend within a primary bull trend.

Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!


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