Head & Shoulders Head Fake

On Wednesday of last week the DOW closed on the cusp of a classic Head & Shoulders pattern hovering just above the 14,800 neckline only to give us a “Head Fake” by Thursday morning.

Head & Shoulders

Wednesday night President Obama announced Dr. Yellen as his selection to replace Dr. Ben Bernanke as Fed Chairperson.

On Thursday morning the market opened up nearly 200 points. Then rumors began to swirl that Washington was close to a deal on the debt ceiling and the government shutdown. By the closing bell on Friday the market was up 434 points in two days.

The following chart is a classic example of the importance of waiting for a pattern to completely form. The market had twice before shown strong resistance at this level so all it needed was a little good news to reverse the trend.

Head & Shoulders Head Fake