Bullish Signal?

December 19th, 2012

by Dominic Cimino

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.


In past commentaries, I've discussed potentially bearish macro-chart divergences that are in place for some global risk-asset markets. However, in this article, I'd like to present a recent development that has potentially bullish implications for U.S. stocks in the nearer term. Specifically, during the last week, the S&P 500 Index may have formed the right shoulder of an inverted head-and-shoulders pattern. Take a look at the chart below.

This chart is a close-up version of one that I have been presenting in a series about S&P 500 parameters. I recently showed how minor resistance at 1420 had been breached, setting up a potential retest of the 1475 resistance area. Notice in this chart that a potential inverted head-and-shoulders pattern has developed. The head, shoulders and neckline are shown as white horizontal lines.

The good thing about this pattern is that once again the parameters are very well defined and offer a good risk-reward ratio. Neckline support is in the 1435-1440 area, while further support lies beneath at the 1420 support area. We should know in short order if the pattern is legit, or if it fails.

I've included three other charts as well. The first is a current look at the inverted head-and-shoulders pattern present on the NASDAQ 100 chart, a pattern I previously presented in NASDAQ 100 Macro Chart Observations. The pattern continues to develop for now.

The second is an update of the XRT-XLP ratio spread. You can see how trend-channel support has held once again, at least for now. If this support holds, that would be yet another feather in the S&P's cap.

The final chart is the Russell 2000 Index. The white horizontal line represents the last market resistance – the market's all-time high.

I continue to have concerns about macro-chart divergences that I have previously mentioned, and which are still present. However, the S&P 500 may be placing an inverted head-and-shoulders pattern that would suggest higher prices. I'm somewhat torn about which should be given greater weight. The good thing is – the S&P's parameters continue to be well-defined.

Dominic Cimino

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Preferred planning concepts, LLC & Cambridge are not affiliated.


© 2012, Dominic Cimino of Preferred Planning Concepts, LLC (You can explore the services offered by Preferred Planning Concepts by viewing us on our website at www.ppcplanning.com) Any redistribution, reprinting, or reference to this chart or content is allowed so long as reference to the author and source is acknowledged.

Important Disclosures

Please be aware that this is not a recommendation to purchase or sell any security. This is not a recommendation for any individual or institution to alter their portfolio holdings. Every individual or institution has its own risk tolerance and investment objectives and perspectives.

Any above opinions of the author should be viewed as such. These opinions in no way represent any type of guarantee. Realize that if you choose to invest in securities, investing in securities carries with it uncertainty and the risk of loss of principal. Lost investment opportunity is also a possibility. Investing in securities carries no guarantees.

Past performance is no guarantee of future results. The price movements within capital markets cannot be guaranteed and always remain uncertain. The above opinions are meant to stimulate thought and should be viewed as such. You are encouraged to discuss these views with your representatives if you have any questions or concerns.

Any indices mentioned are unmanaged and cannot be invested in directly.

It must here be mentioned that technical analysis offers no guarantees of future price movements. Technical analysis represents an observation of past performance and trend, and past performance and trend are no guarantee of future performance, price or trend. The price movements within capital markets cannot be guaranteed and always remain uncertain.

Neither Cambridge Investment Research nor Preferred Planning Concepts is responsible for the accuracy of content provided by third parties. All material presented herein is believed to be reliable but we cannot attest to its accuracy.

All charts presented were made available by eSignal, a charting service available to individuals or professionals. Anyone interested in exploring the potentials of eSignal should give us a call.

Website by the Boston Web Company