Indices Head-and-Shoulders OR Inverse H&S?

We all know about THE Head-and-Shoulders pattern so widely discussed by the financial media and every analyst with a charting package – But, how many are discussing the Inverse H&S pattern developing? We could  be on the cusp of putting in the lower right shoulder, which consequently happens to be taking place at a long-term trend-line extending back to the March 2009 low.

 

The last H&S pattern  (which held better symmetry) that everyone was talking about triggered the neckline back towards the end of June, but was quickly reversed and the market traded up for the next month negating the pattern. Back then I was suspicious, as I am now, that the pattern would not follow through due to the excessive coverage and dismal sentiment in the marketplace.Will this larger sloppier pattern trigger as many are expecting or hold a similar fate as the previously mentioned H&S pattern.

 

Sentiment could further be supporting the bullish side as it is difficult to find anyone with a positive spin on the market. Mom and pop (AAII investors) sure don't like stocks either…..that is often a good sign for the market, however; when they have gotten as bearish as recent polls are demonstrating and the market fails to follow through to the upside the fallout can be swift and harsh. Sometimes dismal sentiment is a leader – this is not an exact science and sometimes being a contrarian means being contrarian to the contrarian – or something like that. Anyways, here is a solid piece regarding the current investor sentiment by QuantiableEdges 

Seasonality, as everyone knows, does not favor stocks in the next few weeks either.

So what I am saying? What I am saying is this - there is a decent chance that the market could hold the longer-term trend-line and trigger the Inverse H&S pattern proving to participants to be overly bearish (from the pros to moes) and the market surprises to the upside. To further add to the bullish case – Emerging markets and Dr. Copper are showing some pretty solid relative strength which could be acting as leading indicators. OR the other scenario is that the trend-line fails along with the Inverse H&S and the bears are vindicated with a breach of the neckline on THE H&S pattern and market goes to hell in a handbasket just in time for Schocktober. As long as SPX 1040 holds, im leaning with the bullish scenario.

Either way, the market should make a sizable move in the next couple of months and volume will pick back up providing solid trading opportunities one way or another.