The Head and Shoulders in the Nasdaq Looms Large

• Posted by Greg Harmon
• on February 9th, 2016

Forgive the Troy Polamalu visual, but the Super Bowl was not that long ago and it really fits the subject well. The most talked about price pattern in Technical Analysis is the Head and Shoulders Top. This pattern is a lot more complex than most traders understand. It should happen after an uptrend. It works best when volume is declining through the pattern, until a pick up as price drops from the Head, and then again from the right Shoulder. The Shoulders should be about equal in height with the Head well above. It also does not trigger until price goes through the neckline.

The Nasdaq 100 ETF ($QQQ) shows a solid Head and Shoulders pattern. And a trigger Monday. The chart below shows that there is now a price objective to at least 79. That is quite a bit lower. Many more traders will position themselves short off of this trigger. But it is far from a sure thing that it will get to the price objective.

For the chartists, this can also be viewed as a possible double bottom against the August low. And the Hammer candle Monday will have many looking for a reversal higher. Also, on a closing basis the price almost made it back above the neckline. If it does reverse higher the Head and Shoulders remains in place until price moves over the top of the right Shoulder, at about 105.

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