Reviewing a minor pattern, HUI’s Head & Shoulders (would-be) Top
I say “minor” because even if it plays out it’s just a little feller, with a measurement to around 300, within an ongoing rally. I was asked for comment on what a subscriber saw out there in the Bug-o-Sphere described as a “confirmed H&S top”. Well, as usual, there is more to the story than just an eyeball grabbing quote of someone’s opinion.
As noted above, it is minor if it does turn out to be an H&S with bearish implications. That does not mean a decline would have to be minor. But it does mean that the pattern would have nothing to do with measuring such downside. Therefore, you don’t want to overreact to it on the face of it, either.
For a look at what would be more major H&S formations, look no further than Huey’s “Crown of Thorns” (2007-2008) and “Mr. Fat Head” (2009-2012), as I called them during their respective eras. Those were major patterns with major and terrible implications. Today’s specimen is not even recognizable on a monthly chart (or a weekly chart, for that matter). It’s minor.
Here is the pattern in question, shown on a daily chart. If it is an H&S, it already dinged 305, most of the way down to its measurement at 300 which, importantly, would maintain a higher low to the previous low of 292.51.
Huey could certainly fail here at the resistance noted by the red dashed line. But that does not need to break the rally. From NFTRH 831:
HUI held its stair-step rally in almost creepy fashion, because how often to gold stocks stick to technical plans? The answer is not very, as they so often seem to drop deeper or rally harder than planned. But in this case, HUI dropped to the SMA 50 as planned, and is poised to resume its rally. If it does, the next objective will be to make a try for 375+.
That would remain the case, intact trend-wise, as long as it holds above the previous low (292.51).
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Head & Shoulders is the most overused pattern in the book…IMO
It’s right up there, that’s for sure.
It is simplistic to only look at a chart pattern for clues. Unless you’re a daytrader looking at intraday charts. But in larger timeframes, there’s so much more to it. Even when one doesn’t read the macro as well as Gary does. Look at precious metal COT’s, smart/dumb money sentiment in the broad market, the elevated VIX, and so on. On the other side of the ledger, narrow credit spreads, cycles are still pointing up, re-expansion of credit, etc. Everyone looks for some degree of repetitiveness, even the machines, whether it are patterns or confluences. And the more complex the repetition you look for, the better odds for success you’ll generally have (as anyone can see a simple repetition like a H&S pattern).
Brilliantly said, Bart