S&P 500 Head & Shoulders or Flag
The graph above represents a short-term S&P 500 (5 month) Daily chart. A few days ago we sent out an update indicating that the markets could test the 50 day moving average (1809) and they did just that. What we need to determine is whether the markets are developing an upside flag pattern that will take us through new highs and possibly to 1900 or whether the market has, or is developing, a topping head and shoulders pattern that could take us through the 200 day moving average and down -10% to -15%. Yesterday we protected the portfolios by putting a small 4% double down hedge position utilizing the S&P and the Nasdaq.
Janet Yellen was perceived positively in her remarks to Congress and the markets responded by lifting towards the critical inflection point. The infection point has multiple technical and fundamental factors converging making it difficult to predict direction. When this happens we protect the portfolios and watch for additional data that will eventually confirm direction. At that time, if the markets head down, we will either increase our short position (protective hedge) or if the markets head up, we will reduce our hedge and our cash weighting which will increase our equity allocation in the portfolios as we try to capture return. We will keep you informed.
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