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Is The H&S Really Over??
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Is The H&S Really Over??

by The MoleJuly 18, 2009

Fujisan here.

What a week!  This has been totally amazing and I really enjoyed it although I could have done it much better.

My July 1st H&S Posting

Not that I want to get a credit for this, but here is what I posted as of July 1st predicting SPY to hit 94.52 for the right shoulder formation.  SPY actually hit 94.51 on Thursday — off by $0.01 from my prediction.  I screwed up with highs and lows of the cycle, so my OPX projection was wrong, but overall, I think my pattern recognition was pretty good.

[Mole here: Off by 1 cent – that’s unacceptable – please try harder for next month, Fujisan – okay?]

I also discussed the right side -left side match – therefore, we should expect the 2nd shoulder formation on the right side to match the left side – not only for the price point but from the time dimensions and it would be taking this whole week to form the 2nd right shoulder.

Is H&S pattern really over?

Now, this is what it looks like now.  As you can see, H&S pattern is still in tact and RS peaked at an exact price point that I predicted on July 1st.

I was one of the few bulls (together with alpha, davidK, and GMgrant) going into last weekend holding longs when everybody else was expecting the market to drop off the cliff, and now I am expecting a big drop on Monday based on the above H&S pattern formation together with my bull/bear cycle work that I have posted previously.  Statistically, Monday after OPX is a big red candle day and I just don’t see another big up day coming up on Monday, especially on OPX Monday.  Of course I may be totally off, and it could still keep going up, but I see divergences everywhere (yeah, we have gone through this scenario before – the market could go much higher with divergences) and it seems to me that the upside is more limited than the downside.

I’m not as a good Elliottitian as Mole or Alpha, so I would love to hear from them if it’s possible to drop from here [this will actually be confirmed by my Sunday post – so, yes you are spot on, Fujisan – this is why I was still short as a midget in a limbo contest going into the weekend]. On Friday, I thought that the market was forming W4 wave waiting for another spike up, but now I’m not so sure.  I am exploring the possibility of an alternative count.  Here are 3 different scenarios:

  1. Go down to fill the gap, then go back up,
  2. Go down to retest the neckline, then go back up,
  3. Go all the way down to 85.4 to complete H&S pattern.

Comments and suggestions are welcome.

August Option Open Interests

As an option trader, I always pay a close attention to the front month option open interests, and that saved me from picking the wrong direction in the past.

If you take a look at July SPY open interests from last week, I did not see that much negativity going into OPX week.  I saw a big open interests in 90 and 95, but no big open interest in anything lower than 90, and that was one of my reasons that the market was not going to drop.

Now, if you look at August SPY open interests, you will notice a huge amount of open interest at the 80 strike price  – as many as 400k.

Once again, I could be totally off on this one, but it’s worth mentioning that there is a huge open interest at 80 in August.  Remember, the market does its best to screw up just as many people as possible.  The moment you think that the market is going up, that’s when its taking a dive.

My ATM calendar results

As the market was so exciting this week, I guess not many people would be interested in my ATM calendar results, but here it is.  As I suspected last week, IV skew was not big enough to make this position work.  I had 1 winner and 2 break/even.

Have a good weekend, everyone.

Fujisan


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.