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July 23, 2009 / Jeb

Head and Shoulders Failure Led To Major Rally

Quite often society rewards commitment at all costs.  I believe commitment to a spouse, friend and family is very important.  However when it comes to stocks one needs to be able to reverse a losing position and not to be committed to a failed patterns.

Just because one sees a pattern and it fails does not mean they are wrong.  There are market anomalies, which has happened this time with the failed head and shoulders pattern.  All over the internet you hear gurus who stay short at all costs and they cost their readers a lot of money.  If you listened to my advice to reverse positions as soon as the neckline reversed you would have made huge gains.  Please see this post.

http://goldstocktrades.wordpress.com/2009/07/15/head-and-shoulders-failure-cover-all-shorts/

Since that failure the market has rallied 12 days.  Now the market does seem overbought and profits could be taken as we will have a short term pullback.  Overall the market is strong and we could continue seeing a major rally especially in commodities, biotech and technology.

Let’s look at the S&P 500 ETF (SPY).

SPY

Now SPY has broken out of 6 month highs on good volume.  This is very bullish and the market could continue higher or find support at these levels.

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