S&P 500 -- A Failed Head and Shoulders Formation


Left Shoulder

Right Shoulder





The tip off for the failure that was coming was the move from 956  889. It was not an “impulse.” We ended up just a bigger “abc” pattern down between 956 and 869.

British Pound -- Another Failed Head & Shoulders Formation

Left Shoulder

Right Shoulder



Here’s another big Head and Shoulder’s failure: the British Pound. Again, the tip off was in the initial move down. It was not an “impulse;” it was just a corrective pattern.

Head & Shoulders Pattern
This is the ‘idealized’ Elliott Wave structure that can create a traditional Head and Shoulders pattern. In classic charting techniques, the measuring rule of the pattern is to take the height of the “head” and measure it down from the point of the neckline break. This phenomenon is caused by a few “tendencies” of waves: a) An “impulsive” move is rarely retraced by more than 62% b) Waves running in the same direction, and of the same degree, often relate by a Fibonacci ratio c) Wave-3s and C-Waves are often an “extension” of the first wave down. Head

Left Shoulder Right Shoulder


~62% retrace b or 2

Elliott Wave Channel

4 1

a or 1

2 c or 3 ~162% of first wave down

The Classic Head & Shoulders Pattern is History
Because of the fact that the classic H&S pattern is “too” well known my the media and Johnny Retail, we may never see a larger scale ‘textbook’ pattern again. Instead, we may get stuck with “messier” formations like these where we see “unbalanced” shoulders, severely sloping necklines, and “fuzzy” necklines that will create plenty of “false breaks.” This is the way Mr. Market will deal with all the new technical trading software that is “empowering” the Retail traders.

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