S&P500 calls for short – Head & Shoulders TOP


S&P500 calls for short – Head & Shoulders TOP

Followed by the Rising Wedge Breakout, we can see very clearly that SP500 lost some momentum – all of this on the background of Fed’s Rate Hikes Expectations.

The Head and Shoulders pattern is clear and obvious – let’s dig some more important details:

1. Volume Distribution:

The volume distribution in a proper H&S Top should be concetrated on: The left Shoulder, The Head, or both of them – but never high on the right shoulder.
Note that high volume on the left shoulder and on the head are not that significant, while majority of the volume concentrated on the second bottom of the H&S .

The volume distribution here does not support the expected implications of an H&S breakout, and therefore, we should consider a short trade with a bit of suspicious.

2. The Breakout

The first breakout of the Neckline occurred with a little peak in volume – this situation tells the trader to wait for new lower top to test the Resistance of the Neckline.

And indeed, the patient trader received the expected new lower top, and on Friday the power of sellers was present.

The inability to raise above the neckline and the fact that the price rejected from there – was a strong tactical signal for those wanna dive deep into profits.

3. Price Target

By H&S Measurement rules, the objective of minimum potential is 3,865.
When considering the overall Technical picture, the historical resistance from September 2020 (3,592) looks very solid to serve as strong support level .

Conclusion:

Technical wise, the picture is very clear and convenient to initiate a Short trade while maintaining a Stop Loss above the last minor top.
Fundamental wise, the Fed is about to hike 25bps on coming Wednesday, and expected to hike 6 times along 2022.
The collision of Russia-Ukraine sets a descent platform for inflation super nova on commodities whom which cause a liquidity problems and chaos on international trade.

Reversal:
There is might be a scenario in which the Fed will flip over and suggest that the “unexpected” war developments will require the take the leg of the pedal of Monetary tightening and go for more dovish policies in form of QE and maybe keep IR low, I think the possibility of such scenario is low, but still – In such case, all the short thesis is canceled and we should wait to see how the markets react to such case and trade accordingly.

Good Luck!