I absolutely loathe the infamous Head and Shoulder’s pattern. If there is any chart pattern in the market I dislike, this is the one. I hate that they are unreliable, poorly analyzed (buy some of the “best” technicians) and risk/reward is spotty at best. Worst of all the most over hyped chart pattern I have ever seen.
However, should you respect it?
Should you respect it when you see it line up on multiple markets at once?
So how do I treat them?
I let them help and shape my bias from day to day. Typically I will not try to play them as a pattern (trade and let them complete to targets or stops) but help them formulate my bias for the coming sessions (or hours if seen on an intraday chart).
See daily charts below:
I tweeted this on Stocktwits @pipczar earlier today (daily SPX)
There are plenty more to show you. The last chart is the USD/JPY and that pair will play out (more than likely if it is going to) after the FOMC tomorrow. However, the fact of the matter is that the AUD/JPY, USD/CAD, SPX, 10 year (chart not shown) and others are pointing to a market that once to take risk assets higher.
Although this goes against my longer term macro view of the markets, the charts don’t lie. Tomorrow post FOMC these charts could be turned upside down, but for now we have to respect what we see.
Disclaimer: I am long the AUD/JPY, USD/JPY and short the USD/CAD. I am unsure if I will hold them through tomorrow’s FOMC meeting.