Robert Prechter: Weekly Dow Chart Shows Bearish Head-and-Shoulders Pattern

This month, Robert Prechter alerted his subscribers of a classic head-and-shoulders pattern shaping up on the weekly chart of the Dow.  If you’re into technical analysis, check out the guest article below that we are re-syndicating, which includes a chart and description of the pattern…

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Robert Prechter: Head-and-Shoulders Pattern in Weekly Dow Chart

August 17, 2010

By Elliott Wave International

In the August issue of his Elliott Wave Theorist, market forecaster Robert Prechter alerted readers that the U.S. stock market was slicing the neckline of a classic head-and-shoulders pattern in technical analysis, and that this may send the market into critical condition.

Prechter said that when the Elliott wave count and a head-and-shoulders pattern are saying the same thing about the stock market, it’s best to pay attention.

Here’s how the August issue of the Elliott Wave Financial Forecast, the sister publication to Prechter’s Theorist, described the head and shoulders pattern unfolding in the stock market:

“The weekly Dow chart [below] shows the development of an intermediate-term, head-and-shoulders pattern from the January high at 10,729.90 to the present. The January high marks the left shoulder, the April 26 high at 11,258 is the head, and the right shoulder is now ending. The April [Theorist] discussed the pertinent characteristics that Edwards and Magee used to define this technical pattern … all apply to the current formation. Observe how weekly stock trading volume has contracted during the development of the right shoulder, a necessary trait of this pattern. The downward-sloping neckline — exactly as on the big ten year pattern — displays market weakness, which is consistent with our interpretation of the wave structure.”

This chart shows the head-and-shoulders pattern.

Here’s what Robert Prechter himself said in a recent Elliott Wave Theorist:

“Generally, when the neckline slopes downward, the right shoulder does not rise to the level of the left shoulder …”

Please look at the chart again — then re-read Prechter’s quote.

Click here to download a free report packed with recent quotes from Prechter’s Elliott Wave Theorist.

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Ed. Note: I am an Elliott Wave International subscriber and affiliate.  They have a lot of quality free and paid content, especially if you’re into technical analysis.  Most people either love or hate Prechter – regular readers know that I really like his forecasts.  If you check out his stuff, I greatly appreciate it if you use the link above, as I receive a commission if you decide to subscribe to a paid service.  But it’s of course up to you, and you can also go direct to the EWI site to check out free and paid stuff too.