There is an obvious price pattern on the price chart for the SPY and the emini SP500 futures. That obvious price pattern is the head & shoulder. Not saying all head & shoulder patterns will fail, but if one put the price pattern within the context of the market breadth indicators, one needs to beware of the obvious! Although there has been a recent minor pullback, but the market indicators on my watch list have not turned negative. If this H&S pattern breaks along with deteriorating market breadth, then the prudent thing to do is to wait for a potential retest of the neckline before considering a move toward the downside. In the meantime, be defensive and be cautious as the market attempts to re-establish a near term direction.
(click on the chart to enlarge)
Whenever there are many eyes watching an obvious pattern with anxious negative sentiment, do not be surprised to see a head fake to trap some of the shorts. The market will fool most of the people most of the time. Beware of the obvious and expect the unexpected!