In the August issue of his Elliott Wave Theorist, market
forecaster Robert Prechter alerted readers that the U.S. stock
market was slicing the neckline of a classic head-and-shoulders
pattern in technical analysis, and that this may send the market
into critical condition.
Prechter said that when the Elliott wave count and a head-and-shoulders
pattern are saying the same thing about the stock market, it’s
best to pay attention.
Here’s how the August issue of the Elliott Wave Financial
Forecast, the sister publication to Prechter’s Theorist, described
the head and shoulders pattern unfolding in the stock market:
“The weekly Dow chart [below] shows the development
of an intermediate-term, head-and-shoulders pattern from the
January high at 10,729.90 to the present. The January high
marks the left shoulder, the April 26 high at 11,258 is the
head, and the right shoulder is now ending. The April [Theorist]
discussed the pertinent characteristics that Edwards and Magee
used to define this technical pattern … all apply to the
current formation. Observe how weekly stock trading volume
has contracted during the development of the right shoulder,
a necessary trait of this pattern. The downward-sloping neckline
— exactly as on the big ten year pattern — displays market
weakness, which is consistent with our interpretation of the
wave structure.”
This chart shows the head-and-shoulders pattern.
Here’s what Robert Prechter himself said in a recent Elliott
Wave Theorist:
“Generally, when the neckline slopes downward, the right
shoulder does not rise to the level of the left shoulder …”
Please look at the chart again — then re-read Prechter’s quote.
This article was syndicated by Elliott Wave International and was originally published under the headline Slicing the Neckline: When the Market May Go into “Critical Condition”.
EWI is the world’s largest market forecasting firm. Its staff
of full-time analysts lead by Chartered Market Technician
Robert Prechter provides 24-hour-a-day market analysis to
institutional and private investors around the world.
Disclaimer: Please note all prices are for information only, they should not be relied upon for accuracy or trading. All prices quotes are based on CFD prices and are similar though not always identical to real exchange prices. STOCKTRKR or anybody connected with STOCKTRKR will not accept any liability for loss or damage arising from use of any information/commentary/charts or articles which is provided 'as is' for educational purposes only, nothing contained on this website should be considered as investment advice - please seek proper investment advice from registered financial broker or institution if you wish to trade on global markets and ensure you are familiar with the risks.
