Pattern Appreciation:

As technicians, patterns are a way of telling us how stocks or any individual instruments are behaving. For me, I was seeing a lot of bull flags, which are formations that rest without giving much back of the strong thrust higher, a good sign. Those were from leading names, a lot in the industrial and discretionary space. Then from names that were trying to play catch up to the good actors, I was seeing plenty of bullish inverse head and shoulder patterns. Again a positive sign, albeit a cautious one. Now if these patterns were to fail and break BELOW the respective pivots that is a red flag. With the first two days of this week that is just what is occurring. Below is the chart of CMG which did sport an inverse head and shoulders pattern and one can see it is now breaking below, and from moves in the OPPOSITE perceived direction the move can be swift. If this breaks below the 200-day SMA it could easily revisit last month’s lows.

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