Dow Jones Industrial forming head and shoulders pattern, part 2

I wrote about "head and shoulders Pattern" on 21st and 23rd of June 2010. I was expecting this pattern to be formed. I was right. We can noticed clearly than it is actually formed in Dow Jones Industrial (DJI). For your information, the "head-and-shoulders" pattern is believed to be one of the most reliable trend-reversal patterns.

Basically, most of the investors/traders do their research based on the fundamental analysis and technical analysis. For technicians/chartists, it's gonna be downside bias for them. The head and shoulders pattern is definitely a real concern to them. For fundamentalist, things are not looking good either. US, Europe, Japan and China, all these economy power houses have been releasing lots of negative news.

As we can see from the chart above, there was a very short term rally from 8th to 18th June 2010. What makes me worry was the trading volume was not increasing as the rally was happening. I did not buy into the rally, in fact I was clearing my call warrants and started buying put warrants.

After 18th June 2010, when DJI was starting to decrease, the volume increased. The volume is increasing as DJI keeps moving down. If DJI fails to hold on to the support level of 9759, I really think we will see a major tanker in July 2010. This will not be an ordinary tanker! Some people might argue that we should buy whey they are trading near support and sell when they are trading near resistance. I am not objecting that, but this time round, I really think that DJI 9759 support is not going to hold on much longer. It is gonna to be broken.

Even though I trades in KLSE, sometimes I do my research based Dow Jones Industrial, S&P 500 and NASDAQ to determine the major trend of KLSE.

I am happy that I finally gains some new experiences in trading in KLSE. I start to buy put warrants. Before this, I never had the chance to do so as the uptrend was intact. The feeling is actually quite cute. Since I have bought put warrants, I am happy when the market drops while I used to be getting worry when the market drops.

For your information, most of the put warrants premiums are not correctly calculated by my online broker. I guess it is wise for us to double confirm the premiums before we trade on these put warrants.

Ok, good luck.

GOon

Read more on "Head and Shoulders Chart Pattern"
http://cathoon.blogspot.com/2010/06/head-and-shoulders-chart-pattern.html

"Dow Jones Industrial forming head and shoulders pattern"
http://cathoon.blogspot.com/2010/06/dow-jones-industrial-forming-head-and.html

Dow Jones Industrial forming head and shoulders pattern

It is disappointing that rally over China's Yuan move fades as quickly as it began. In fact, Done Jones Industrial opened higher on Monday but closed mixed. I was expecting that rally would last a day or two. It looks to me that Done Jones Industrial (DJI) is forming a head and shoulders pattern. There is a significant resistance for DJI at 10700. The "head-and-shoulders" pattern is believed to be one of the most reliable trend-reversal patterns.

KLCI was bullish on Monday responding to China's Yuan move. Now I am a bit concern about the current short term up trend of KLCI could be fading quickly too. In my humble opinion, it is a wise move for us to close part of our portfolio now. Right now, I think put warrant is really worth a look.

Ok, good luck

GOon

Read more on "Head and Shoulders Chart Pattern"

http://cathoon.blogspot.com/2010/06/head-and-shoulders-chart-pattern.html

Head and Shoulders Chart Pattern

The head and shoulders pattern is generally regarded as a reversal pattern and it is most often seen in uptrends. It is also most reliable when found in an uptrend as well. Eventually, the market begins to slow down and the forces of supply and demand are generally considered in balance.  Sellers come in at the highs (left shoulder) and the downside is probed (beginning neckline.)  Buyers soon return to the market and ultimately push through to new highs (head.) However, the new highs are quickly turned back and the downside is tested again (continuing neckline.)  Tentative buying re-emerges and the market rallies once more, but fails to take out the previous high. (This last top is considered the right shoulder.)  Buying dries up and the market tests the downside yet again. Your trendline for this pattern should be drawn from the beginning neckline to the continuing neckline.  (Volume has a greater importance in the head and shoulders pattern in comparison to other patterns.  Volume generally follows the price higher on the left shoulder. However, the head is formed on diminished volume indicating the buyers aren't as aggressive as they once were.  And on the last rallying attempt-the left shoulder-volume is even lighter than on the head, signaling that the buyers may have exhausted themselves.)  New selling comes in and previous buyers get out.  The pattern is complete when the market breaks the neckline.  (Volume should increase on the breakout.) 

A technical analysis term used to describe a chart formation in which a stock's price:

1. Rises to a peak and subsequently declines.
2. Then, the price rises above the former peak and again declines.
3. And finally, rises again, but not to the second peak, and declines once more.

The first and third peaks are shoulders, and the second peak forms the head.


The "head-and-shoulders" pattern is believed to be one of the most reliable trend-reversal patterns.