Heads-Up: This Pattern Is Calling for a Sell-off

The pattern I stumbled on is a classic head-and-shoulders pattern. In this case, it is calling for a sharp decline — and soon.

With the technology at our fingertips, it’s easy to overlook some classic things.

For example, I usually spend two to three hours a day running computer programs to help me analyze charts and depict patterns. But it’s some of the classic chart patterns that are the hardest to code into a computer — most need to be seen by the human eye.

They are still easily tradeable patterns and have easily determined signals, and one recently appeared for the financial sector exchange-traded fund: the Financial Select Sector SPDR Fund (NYSE Arca: XLF).

The pattern I stumbled on is a classic head-and-shoulders pattern. This is typically a reversal pattern, meaning once it is formed, prices usually head in the opposite direction. In this case, it is calling for a sharp decline — and soon.

Take a look:

The pattern I stumbled on is a classic head-and-shoulders pattern. In this case, it is calling for a sharp decline — and soon.

728x170_CanYouIdentifyRock_article
728x170_2-in-1-trillion-howto-smallstake_updated-article
728x170_small-stake-net98470_article
728x170_PRL_IOT_50B-Products-article
728X170PRL-IOT_Article_3AdsIn1_article
728x170_DowCracks23k_article
728x170_savetheworld-article

I labeled the key parts for you — left shoulder, head and right shoulder. But the most important is the neck line (the green line) — this acts as support for the pattern. When shares fall below that, that’s how we know the pattern is completed and we can look at our price target.

Our price target on the chart is the red line. We determine that based on the distance from the neck line to the top of the head, then we subtract that amount from the neck line.

Nothing works out picture-perfect all the time, but the setup so far is about as textbook as it comes. If shares break below the neck line soon, we are looking at a rapid sell-off as stocks falls toward the price target.

Regards,

Chad Shoop, CMT
Editor, Automatic Profits Alert

  • Thomas Corcoran

    The sky is falling!!!! The sky is falling!!!!…. Hilarious Chad…. That right shoulder?…. could be a consolidation retracement… couldn’t it?

  • Thomas Martof

    Well, Now Jim Cramer along with Ed Ponsi covered this topic just yesterday. Which puts Chad a week and a half ahead two highly resected and well know fund managers. And although I’ve had my doubts about Mr. Shoop and the calendar… I now have a new mantra I tell myself to “Trust the Chad” cause he’s been more right than most and way better than I… So another correction be it small or large sounds to be on the horizon. And seeing things go down on any news good or bad these days, I would not scoff at him.