Where it was, Where it is, Where it's gona be

Where it was:  over the past year we have seen what is called a “head and shoulders” topping pattern develop.  This pattern usually occurs at the top of a trend hence the name topping pattern.  This pattern is one of the most telling of all market patterns.  I say that because off of this pattern you can usually expect a measured move.   A measured move is where price moves from one point to another (in this pattern this point is called the neck line) and then moves again in the same direction an equal point or percentage.  On August 4  we broke below the neckline of the larger pattern.

Where it is:  what a day, all major indices we saw dropped significantly.  The NASDAQ fell the most falling 6.9% .  If you’ll notice, we have gone well past the point where our measured move told us we were going.

Where it’s going:  What is left is speculation.  I can’t say with absolute certainty, but there are clues.  Here I will outline what I am looking at.  From here I am looking at several different price levels and sociopolitical factors.  1.) I am looking at support and resistance levels.  We broke through several and ended just above one.  We started the day by hitting a top off of the 1200 level and pushed through 1175 and 1150 respectively.  We eventually found some support at 1120 which was resistance a year ago today, and was coincidentally the point at which we saw QE2.

If it looks like a bear, sounds like a bear, and mauls you like a bear, it will rip your face off.  That’s right, we have entered a bear market.  Typically, and most bear markets aren’t typical, bear markets consist of three legs down.  Having begun the first leg, we haven’t seen any rally attempts yet.  Since we haven’t seen any rally attempts, I think one is coming soon.  the sooner the better.  The first rally attempt will likely come after our one trick pony Ben Bernanke announces QE3, which I expect he will do tomorrow.  Off of the first rally attempt we will probably go back up to one of the previous levels of support, that are now resistance.  I expect this to occur around 1200, or wherever the 200 day moveing average is when this rally occurs, before we head back down.  After that I am a little foggy.  For more in-depth analysis please visit Ron Walker and his video blog at http://www.thechartpatterntrader.com