SHS stands for shoulder-head-shoulder, and can be tilted to either side. In the old textbooks, volume had to rise during the left shoulder and head phases, falling off as the right shoulder failed in its attempt at a new high.
The neck line simply connects the low points from the completion of the left shoulder and the completion of the head, extending to the right. When the right shoulder, having failed in its mission to keep the advance going by making a new high, retreats to the neck line, the stage is set for a downside breakout. It doesn't have to happen, of course, but it is ominous. If you had been long since before the pattern developed, and had now witnessed three retreats to the same level, you might be inclined to bail out if "support" at the neck line fails to materialize. You and a lot of others.
When a breakout occurs, it tends to move rapidly as the disillusioned jump ship. One way to measure the potential of the down draft is to count the price range from the neck line to the top and subtract that amount from the line.
One more point. After the breakout, there will generally be a rally carrying back to the neck line, which now acts as resistance. Those who did not jump ship earlier, do so now. The decline then continues until it finds a new level of equilibrium.
Take a look at Maurice's INX chart in this context and you should see both the completed SHS and the pending buildup to a larger one.
Jack Bridges |
