Today's Market
by Dr Invest

Over the past ten days, the market has strongly moved up and then strongly moved down. There has been no real distinct direction. We can speculate about a Head and Shoulders Pattern eventhough the pattern has not fully disclosed itself.

The head and shoulders pattern is generally regarded as a reversal pattern and it is most often seen in uptrends. It is also most reliable when found in an uptrend as well. Eventually, the market begins to slow down and the forces of supply and demand are generally considered in balance. Sellers come in at the highs (left shoulder) and the downside is probed (beginning neckline.) Buyers soon return to the market and ultimately push through to new highs (head.) However, the new highs are quickly turned back and the downside is tested again (continuing neckline.) Tentative buying re-emerges and the market rallies once more, but fails to take out the previous high. (This last top is considered the right shoulder.) Buying dries up and the market tests the downside yet again. Your trendline for this pattern should be drawn from the beginning neckline to the continuing neckline. (Volume has a greater importance in the head and shoulders pattern in comparison to other patterns. Volume generally follows the price higher on the left shoulder. However, the head is formed on diminished volume indicating the buyers aren't as aggressive as they once were. And on the last rallying attempt-the left shoulder-volume is even lighter than on the head, signaling that the buyers may have exhausted themselves.) New selling comes in and previous buyers get out. What a "Head and Shoulders Pattern" Looks Like After each "Head and Shouder" pattern, there is a drop in the market. 2008, it announced one of the largest drops in the market since the great depression. Of course, we couldn't call it that, so it was simply a recession. In August of 2011, we experienced another downturn after a "Head and Shoulders" pattern. Today, I am seeing a new pattern in 2012 that uncomfortably looks like a "Head and Shoulders" pattern. The right side of the shoulder is not yet fully formed and the pattern seems smaller than I would expect, but considering that the fundamentals of the world market is not particularly strong and growth has come largely from speculation, the pattern may be more than a ghost. If this is a legitimate pattern, the right shoulder should materialize about equal to the left. My guess is that this will occur within a few more weeks. On the other hand, if this is not a legitimate "Head and Shoulders" pattern, we will continue in a sideways pattern for a bit longer. What I Plan to Do I don't want to be the market right now. The stock that I had held, sold with a TRAILING STOP. I have some investments in TIP, BND, and MBB, all which have risen in value. Should the market continue in a downward trend, these will only continue to grow in value. A STOP-SELL or TRAILING-STOP is your best protection in a volatile market.  Now is not the time to establish a position (TO BUY). Stay out of the market is my suggestion. We have already demonstrated that a LONGTERM HOLD POSITION has not been very successful over the past 12 years. This is largely due to DEBT. We have borrowed our way to prosperity, but one day, there is pay-day. That is when you hope to maintain the life-style you have always enjoyed, but lack the credit to borrow any further. Neither our government, nor the masses of our population in the U.S. are ready to give up their love for credit. This leads to sudden GAINS and then sudden LOSSES. We have been in that cycle the past 12 years. This cycle will continue. We are now at a HIGH in the market. The likelihood of the market moving higher would require a remarkable change in economic trends: for example, reduction in public and personal debt, increases in the Gross National Product... on and on. The government is only predicting a 2% increase in the GNP in 2012. Even if we hit a 3% increase in GNP, the money generated is so pathetic our economy will only keep its head above water. If you are in the market, PROTECT YOURSELF; use a STOP-SELL. Now is not the time to daly.  If the market doesn't move down in the next few weeks, it will in the next few months. Don't take a chance to lose 20% or 30% of your investment. (Note: the above article is for entertainment purposes only and not to be used as investment advice.)