NYSE completes H&S top

Last month we discussed whether the NYSE index was forming a H&S top within a bearish rising wedge. Today's price action suggests that the NYSE index has completed a significant topping pattern:

Other U.S. indexes are at critical support levels. As we discussed yesterday, IWM (Russell 2000) seems to be breaking down from a H&S top.

Remember, we must trade the actual price action rather than our wishes. I lose sight of this truth often. And the warning applies to both bears and bulls. Long-suffering bears may - may - be getting the breakdown that they have been waiting for so long. But this epic bull market has made countless stick saves to continue its run higher. We must trade with discipline and respect our stops. If we are bullish, then we may be proved right again. But we, too, must respect our stops if the market continues to break down. The stock market lost more than half of its value during the 2007 to 2009 financial crisis and 90% of its value during the Great Depression. And yes, these events will happen again for human nature is constant.

Making money is not the traders' priority. There will always be more compelling set-ups. Our priority is surviving and protecting our capital.

Analysis of U.S. stock indexes

The current bull market that started in March 2009 has been epic. Again and again, at key moments, the market bounced from key support levels. Countless Head & Shoulders Top patterns turned into H&S Top Failures that started yet another run higher. Countless sideways trading became continuation patterns that started the next leg higher. The market survived key tests and thrived.

We seem to be at another key test. Let's first look at 6-year weekly chart of SPY (S&P 500):

A historic run where the market has gained more than 200% in 6 years. Next, let's look at a 3-year weekly chart that shows a possible 3-year trendline support:

Next, a daily chart focusing on the past 10 months:

Intriguing possibilities. But, stocks have not broken down so far. And they haven't for 6 years. An epic breakdown is possible, but it is only a possibility. And there are good reasons to think that the market will bounce yet again. SPY is resting and finding support at its 200-day moving average. If the 200-day is pierced, then there is likely to be strong support around the 205 level.

So several things have to happen before a breakdown is confirmed. My approach is to stay patient and let the market point the way. There is no need to try to predict. We cannot. Instead, we should let the market declare its intention. We'll likely find a good entry spot even after the fact.

Let's look at IWM (Russell 2000) for comparison. I find the IWM chart the most interesting among the indexes.

First, a 6-year weekly chart:

IWM is up 265% since the financial crisis low. Will it continue higher or is a reversal near? Let's look at a 10-month daily chart:

Next, let's focus on the past 5 months:

Such a pattern within a pattern is always interesting but never guarantees a set-up will work. In fact, the more intriguing the pattern, the more dangerous. Why? Because we get obsessed with the set-up "working" and producing the wished-for outcome rather than trading the actual price action.

So, for now, we should be aware of the potential set-ups. Then we must have the patience and strength to let the market show us the way.

Ralph Lauren breaking down from a 3-year topping pattern

Let's look at the weekly chart of Ralph Lauren:

From about $30 a share at the financial crisis lows of 2009 to almost $200 a share in mid-2013, Ralph Lauren has mirrored the current historic bull market. Now, however, Ralph Lauren may have topped out and started a significant down trend. The next chart is a daily chart that focuses on the previous 18 months:

We see a 5-month continuation rectangle that could propel the breakdown.

Warning: Ralph Lauren is due to release is next earnings report on August 5, 2015. The market's response to an earnings release is unpredictable. I exit from all or most of my position before an earnings release no matter how promising the pattern. The only exception is if I am sitting on a significant profit. If I were not in this trade yet, I would wait for the dust to settle from the earnings release and then evaluate whether there is an attractive entry opportunity. If no entry spot presents itself, I must remember to let this trade go - because there will always be other opportunities.

H&S top in Huntsman (HUN)

Here is the 6-year weekly chart of HUN:

Next is the 2-year daily chart showing a massive 22-month Head & Shoulders Top:

As always, don't chase. If we wish to short this set-up, we could wait for rallies to the $21 level and set our stop somewhere around $22. Such an entry has a more favorable reward-to-risk ratio than hastily shorting around $19 - but that's just one possibility. We need to determine our risk tolerance and comfort level. It is always best to err on the side of caution.

What if there are no retests of the neckline that give us a more favorable entry spot? Then let this trade go. There will be many more opportunities. Stay patient. 

And, of course, every pattern - no matter how well-defined and textbook, can fail. We must respect our stops and move on when a pattern fails and becomes something else.

Analysis of US stock indexes

First, a 15-month daily chart of SPY:

Stocks have traded in a tight range since December 2014 and especially since February 2015. The profitable approach has been to buy weakness and sell strength. Will this playbook change? Let's look at the other indexes.

The next chart is the NYSE index:

In April 2015, we considered whether the NYSE index was breaking out of a massive continuation H&S bottom to start yet another uptrend in our current epic bull market. Now, a much more bearish possibility seems likely. Repeated attempts to close and stay above the 11,100 level failed and the NYSE is now breaking down from a possible bearish rising wedge. Prices are breaking down after retesting the lower boundary. The next critical test will be the 10,650 level that provided support at the lows of March and early July. If 10,650 does not hold, then the NYSE will have broken down from a well-defined H&S top within a rising wedge:

Stay patient and calm. Participate with the trend rather than trying to predict the trend - which is impossible. And remember: if we don't want to trade, then we don't have to trade.

FedEx: Reversal or Consolidation for the Next Leg Up?

Let's look at the weekly chart of FedEx:

After recovering from the financial crisis low of 2009, FedEx formed a massive 3-year continuation Head & Shoulders Bottom that launched the current uptrend.

Next is the daily chart:

FedEx has formed a textbook rectangle and its stock price is at the crucial 164 support level. A decisive close below 164 would complete a reversal rectangle with a price target of around 144. Of course, FedEx can bounce from the 164 support level and the rectangle become yet another continuation pattern that starts yet another uptrend. Stay patient and follow the trend rather than anticipating or predicting the coming move.

Gold: chart analysis $GLD

First, the weekly chart of GLD:

Next, the 2-year daily chart:

We could argue that GLD's decline this week was launched by a well-formed continuation descending triangle. That said, prices can do anything, including going back up to the 110 level or beyond. Remember: patterns fail often. Should GLD continue to decline, there may be support at 100, which was resistance in 2008 and 2009. If 100 does not hold as support, then I see 84 as the next major support level. But first, let's watch for a retest of the 110 level.