[NASDAQ chart ramblings: Does the NASDAQ have dandruff?]
We have again stalled at the 1750 region, which is the key level we must pierce convincingly with a close below it in order to signal our minimum probable downside price objective in the 1675 area out of the Head & Shoulders pattern.
The minor Head & Shoulder we are testing has a neckline extending through the lows from 4/9 to 4/27. Volume was proper for this minor pattern, with peak volume occurring at the peak "head" day on 4/22.
The 1675 level is based on a geometric projection from the head peak to the level of the neckline on that day. This is within a couple percent of other methods of projection also, but what's a couple percent among friends.
VOLUME DISCUSSION:
Volume increased on the rise to the head peak, and declined into the start of the right shoulder. The second highest volume day occurred 1 day prior to the left shoulder peak.
The advance into the left shoulder showed higher volume than the advance into the right shoulder, and both shoulders showed lower volume in their decent than their rise.
The fact that the volume in the right shoulder was in decline is key to a proper H&S pattern, showing a decreased level of activity. The selling hadn't begun in force, but the absence of buyers in the right shoulder compared to the rest of the pattern is important.
Volume since the 4/22 peak has been in a declining trend, with the exception of the 5/27 rally day off the intraday low below 1750 (this, however, was lower than the peak right shoulder volume).
CONFIRMATION:
The closing penetration of the neckline on 5/21 has yet to result in the kind of convincing downward move through the 1750 level that we need in order to switch modes to the new price objective around 1675. Right now, we are range bound in the 1750 to 1800 area.
IMPLICATIONS:
The important thing to note--if the pattern confirms--is this would be considered a minor H&S due to its short duration and relatively minor fluctuations.
After reaching the 1675 area, an ensuing rally back near the October 1997 highs could be expected (back up around the 1750 area). This entire pattern actually forms the (potential) head of a larger Head & Shoulders pattern with greater downside implications.
Assuming the above plays out and we reverse around 1675, the larger pattern would carry downside implications to the 1275-1300 area (although this is hard to project until we actually turn up into the right shoulder).
A very crude projection would place this toward the latter part of this year if it plays out, but such a projection is with very low confidence. I sure wouldn't bet much on it at this time.
In summary, we need a convincing close below 1750 before the minor Head & Shoulder could be expected to play out. A strong close above 1800 with good followthru would negate the pattern, but not until we close in new high ground on strong volume is the bullish trend resumed. I'm leaning toward the decline scenario as more likely myself.
dh
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