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Thursday, February 16, 2012


Ideally for the bears, you would not want a gap down (or at least a very big one) created by the overnight futures - or at least a large unfilled gap. That just creates a big target to be filled later just like what happened last Friday.

You would like to see a head and shoulders pattern develop as a topping pattern. The right shoulder would be a wave two and then the follow through downside would break the uptrend pattern by breaking the lower channel solidly and creating a lower low finally. So far that has not happened. Again, it doesn't have to happen that way, but its preferable because it fits EW theory nicely.

We have an neckline established.
The dollar has made solid progress in its proposed series of ones and twos up - again only after filling a large gap. In this case where each degree label of "one" is marked, there does  not exist a small head and shoulders pattern - which if it had existed may have indicated a topping pattern. 

So the lack of H&S pattern at each peak has been bullish kinda for bears long term..
Anyways, thats my genreal thinking on gaps and H&S patterns. Large gaps tend to be filled and H&S patterns are a natural EW pattern. Left shoulder is wave three, head is wave five, right shoulder is wave two of  a trend reversal. (Most of the readers here are well acquainted with these topics and then some).

The larger the H&S pattern, the larger the wave structure. And right now there exists a ginormous pattern. Left shoulder is the 2000 top. Head is 2007. Right Shoulder is occurring - at least in the DJIA. And its been a span of a Fibonacci 144 months across the entire pattern.
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