Head & Shoulders Patterns are wonderful chart patterns, providing solid advance warning of impending plunges in stocks.  But, their clearly defined trigger points and targets can also be used by those propping up “markets” to negate the move that would otherwise play out.

Such is the case in SPX, where two different H&S Patterns have completed, and partially played out, only to see sharp spikes in CL and plunges in VIX drive prices back above both necklines.  It has become a hallmark of the “markets” for the past eight years, and makes sticking to your guns that much harder.  And that, of course, is the whole point.

Yesterday, SPX got within 2.11 of our next downside target before VIX was hammered by 10.2% — a spectacular move that resulted in SPX melting up 17 points into the close.  Another day, another pattern busted (for now) by the algos.

continued for members…

SPX closed just above its yellow neckline yesterday, and looks to build on that gain this morning with the futures being up 2.50 at 9:15.  SPX can rise as high as the red channel top at about 2276.25 without it denting the downside case too much.

USDJPY bounced off the SMA50 as expected, but probably has further to go this afternoon or next week.

And, CL dropped as much as it could without breaking the rising channel I guessed at last night. VIX continues to call the shots, with another intraday plunge which was maintained overnight.

UPDATE:  9:36 AM

This should be a good short entry point (2276.80) for those who didn’t hold overnight.  Tight stops are a good idea, as VIX has reached channel midline and Fib support that, if it doesn’t hold, would potentially goose SPX to new highs.

VIX has already dropped through the yellow channel bottom — the 3rd time in the past week and 5th in the past month.  Each previous time resulted in a decent bounce (SPX drop.)

While VIX is contemplating breaking down, CL spiked up over its SMA10 and 20, but didn’t yet break out.  For those looking to play the drop into Feb 11, I’m assuming it reverses here…

UPDATE:  2:17 PM

SPX is about to close this morning’s gap (2272.78), now that the hit job on VIX has eased up.  For anyone who doesn’t intend to hold short over the weekend, this will be an opportunity to cover.  However, I still feel as though we’ll get another leg down next week totaling 60 points or so.

ES is backtesting the little white channel it broke out of this morning.  And, NKD continues to roll over after backtesting.

UPDATE:  2:30 PM

Gap is officially closed.  If it’s going to bounce, it should be here.  Though, again, I’d be happy to remain short.

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