Shoulder – Head – Shoulder pattern appears to be forming in the Major Equity Indexes

To begin with this is not investment advice. Always do your own risk analysis and work with a professional investment counselor. 

On January 22, 2016 my son sent me an email which I will share, with his permission here:

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Dad,  

I just got done with my morning routine of working out, finalizing my lesson plan, and checking ZH/Google finance. My day was going great until now. Now, I know that it sounds really “douchey” of me to say, but I feel sick when I see stocks go up, especially when they go up a lot. Now, I think that could be in part that I really want to see them go down, but I wonder if something more sinister is afoot than that. It has made me sick since March 2015 to see stocks go up and I only just started asking myself why and if it is more than my own opinion and wishes. To me it seems that the farther out a real crash is pushed, the worse it will be. By companies, individuals or PPT [plunge protection team] pumping up the system, it only worsens our condition in the long run. Then again, it is kind of nice to have the party moving along for right now. I do see the good in having good times continue for now. 

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So I turned to the markets and as I pull back to view the last 6 months something very interesting popped out at me. It appeared that we had just passed through the first “shoulder” and the “head” of a classic shoulder-head-shoulder formation. 

I responded to him as follows:

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Son,

What I see developing in the market is a classic "head and shoulder" pattern. The first shoulder was after the initial drop last fall - the head from Oct 15 until a few days ago when we started the 2nd shoulder. The first shoulder lasted a little over a month from about Sept 12th or so until Oct 15. If we are in that pattern then this 2nd shoulder will take stocks back up to the 16500 level or so where they will bounce around until about mid- to late-Feb. I'm attaching a screen shot of the year in stocks so you can see the 1st shoulder and the recent head. 

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As I’ve watched the market the past few days since this email exchange the pattern appears to be holding. We’ll have to watch and see if, in fact, it is the second shoulder but if it is then we should see the markets break downward in a big way sometime shortly after the 18th of February. Probably the week of the 22nd if someone were to twist my arm for an answer. 

Of course I could be wrong—but it is always good to watch and see how the markets are shaping up. I’ve pulled the major US equity indexes as of February I and am including them with this short report for the reader.

While I offer no investment advice I can say that my personal strategy at this point is asset and principal preservation. The ability to be nimble in the market is one of my priorities and being nimble includes seeking protection for my assets both domestically and offshore. 


- BULWARK IN THE BREACH 
BITB holds a degree in finance from Brigham Young University, an MBA from Pepperdine University and has 25-plus years of experience as a financial analyst, CFO and COO for domestic and international companies.