S&P 500 Inverse Head and Shoulders Update

The major technical break of the inverse head and shoulders which was widely lauded when the S&P price action broke through the neckline resistance of 1335, on 15th June, is now back below the neckline indicating that the potential for a trend reversal to the upside was not as solid as it seemed.

The S&P sliced back through 1335 support last week in bearish defiance, failing to follow through to the upside and reach the 1404 target. Not all technical patterns work out and it’s best to combine any technical analysis with alternate views, probabilities and balance while continuing to interpret and monitor the price action as market moves develop.

In addition to the inverse head and shoulders pattern, I noted last week that the S&P’s bullish up move from the 4th June lows had perfectly tested the 1360 resistance level – representing the breakdown level from the topping pattern that developed through March and April. I offered an alternative target of 1370 on a shorter-term time frame flag pattern, suggesting that the 1363 high may be close enough and that proved to be the case.

Since this pattern has failed to give the correct signal, technically the S&P now looks to be in limbo – until a break higher through 1363 confirms a new uptrend or a break below 1266 allows new downtrend lines to be drawn.