02-06-2022, 12:58 AM
Are we in the second shoulder?
<!-- SC_OFF --><div class="md"><p>It seems that we're quite possibly forming the second shoulder of the <a href="https://www.investopedia.com/terms/h/head-shoulders.asp"><strong>head and shoulders pattern</strong></a>. Zoom out to a year on QQQ and the shape is quite apparent, and in a more attenuated form in SPX and the total market as well. </p> <p>There's the usual chatter as to the forces currently at work from both analysts and market participants, including here. I must say that as a non-expert retail investor who reads regularly, it definitely seems that sentiment, at least, has changed; the permabull stuff is dying away. </p> <p>Thoughts? The head-and-shoulders pattern is thought to be one of the most reliable technical indicators. We have a lot of attempts to rally in meme stocks like TSLA, but they seem to be losing ground. </p> <p>A related but important question is, if we are to see the second shoulder, what comes after? So far the Fed's interference, er, guiding hand has largely softened and protracted what would otherwise have been sharper corrections for a clearly overextended market. So far we haven't seen margin calls and other accelerants on a large scale. The fact we haven't reached that tipping point doesn't mean it's impossible or unlikely, but it's hard to assess.</p> <p><strong>ETA: For those who like to baselessly claim widespread debunking of TA or that there's no evidence for the head-and-shoulders pattern, you are simply incorrect--please contribute to the discussion but without simple conclusive dismissals.</strong> For example, see:</p> <p><a href="https://www.researchgate.net/publication/31474225_The_Predictive_Power_of_Head-and-Shoulders_Price_Patterns_in_the_US_Stock_Market_Gene_Savin"><strong>The Predictive Power of “Head-and-Shoulders ” Price Patterns in the U.S. Stock Market</strong></a></p> <blockquote> <p><strong>Risk-adjusted excess returns to a trading strategy conditioned on “head-and-shoulders” price patterns are 5–7% per year. Combining the strategy with the market portfolio produces a significant increase in excess return</strong> for a fixed level of risk exposure.</p> </blockquote> <p><a href="https://mpra.ub.uni-muenchen.de/60825/1/MPRA_paper_60825.pdf"><strong>A New Recognition Algorithm for “Head-and-Shoulders” Price Patterns</strong></a></p> <blockquote> <p>In this paper, a filter that removes invalid HS patterns is proposed. <strong>It is found that the risk-adjusted excess returns for the HST pattern generally improve through the use of our filter.</strong></p> </blockquote> <p><a href="https://projet.liris.cnrs.fr/imagine/pub/proceedings/ICANN-2010/papers/6354/63540130.pdf"><strong>Identification of the Head-and-Shoulders Technical Analysis Pattern with Neural Networks</strong></a></p> <blockquote> <p>results are very promising with an overall correct classification rate of 97.1%</p> </blockquote> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/jeff_varszegi"> /u/jeff_varszegi </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/slbeyq/are_we_in_the_second_shoulder/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/slbeyq/are_we_in_the_second_shoulder/">[comments]</a></span>Kind Regards R
<!-- SC_OFF --><div class="md"><p>It seems that we're quite possibly forming the second shoulder of the <a href="https://www.investopedia.com/terms/h/head-shoulders.asp"><strong>head and shoulders pattern</strong></a>. Zoom out to a year on QQQ and the shape is quite apparent, and in a more attenuated form in SPX and the total market as well. </p> <p>There's the usual chatter as to the forces currently at work from both analysts and market participants, including here. I must say that as a non-expert retail investor who reads regularly, it definitely seems that sentiment, at least, has changed; the permabull stuff is dying away. </p> <p>Thoughts? The head-and-shoulders pattern is thought to be one of the most reliable technical indicators. We have a lot of attempts to rally in meme stocks like TSLA, but they seem to be losing ground. </p> <p>A related but important question is, if we are to see the second shoulder, what comes after? So far the Fed's interference, er, guiding hand has largely softened and protracted what would otherwise have been sharper corrections for a clearly overextended market. So far we haven't seen margin calls and other accelerants on a large scale. The fact we haven't reached that tipping point doesn't mean it's impossible or unlikely, but it's hard to assess.</p> <p><strong>ETA: For those who like to baselessly claim widespread debunking of TA or that there's no evidence for the head-and-shoulders pattern, you are simply incorrect--please contribute to the discussion but without simple conclusive dismissals.</strong> For example, see:</p> <p><a href="https://www.researchgate.net/publication/31474225_The_Predictive_Power_of_Head-and-Shoulders_Price_Patterns_in_the_US_Stock_Market_Gene_Savin"><strong>The Predictive Power of “Head-and-Shoulders ” Price Patterns in the U.S. Stock Market</strong></a></p> <blockquote> <p><strong>Risk-adjusted excess returns to a trading strategy conditioned on “head-and-shoulders” price patterns are 5–7% per year. Combining the strategy with the market portfolio produces a significant increase in excess return</strong> for a fixed level of risk exposure.</p> </blockquote> <p><a href="https://mpra.ub.uni-muenchen.de/60825/1/MPRA_paper_60825.pdf"><strong>A New Recognition Algorithm for “Head-and-Shoulders” Price Patterns</strong></a></p> <blockquote> <p>In this paper, a filter that removes invalid HS patterns is proposed. <strong>It is found that the risk-adjusted excess returns for the HST pattern generally improve through the use of our filter.</strong></p> </blockquote> <p><a href="https://projet.liris.cnrs.fr/imagine/pub/proceedings/ICANN-2010/papers/6354/63540130.pdf"><strong>Identification of the Head-and-Shoulders Technical Analysis Pattern with Neural Networks</strong></a></p> <blockquote> <p>results are very promising with an overall correct classification rate of 97.1%</p> </blockquote> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/jeff_varszegi"> /u/jeff_varszegi </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/slbeyq/are_we_in_the_second_shoulder/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/slbeyq/are_we_in_the_second_shoulder/">[comments]</a></span>Kind Regards R