Final Update

It looks like we'll close around this level. There is a small divergence (negative) between the 2 and 3:45 p.m. tops. We'll probably see some weakness in the a.m. from that.

Update

We now have 1 and 5 min negative divergences in the SPY. Lets see if this can take us to a new intraday low.

Several 1-min 3C charts have started putting in positive divergences

We may see a bump up in price shortly, an excellent place for those of you who need core shorts to add a little.

H&S tops

"Failed July 2009 H&S?" Random price pattern as volume did not confirm the pattern, this was not a H&S top.

Current H&S top. Note how this cumulative volume indicator I wrote to help you more easily see what volume is doing, rises on the declines and falls on the major rallies. This is the confirmation needed for a H&S top. Volume analysis is the second most important part of technical analysis only behind price, but nearly every technical pattern has a corresponding volume pattern that must be in place to confirm the pattern. A month or so ago, I thought this might be a Broadening top, I said "The price action looks like a Broadening top, but the volume action appears it will become a H&S top". Be careful, don't forget the importance of volume as many in Technical Analysis have. T.A. has long been described by some as an approach that attracts lazy people, the volume analysis which was missing from the July price pattern of 2009 seems to confirm that statement in some people's case.

Below are 6 3C charts (2 different versions on 2 different averages-1,5 and 10 minute) and as of now, all are either in leading negative divergences or are in lock step with the decline (confirmation). There's also a chart of the SPY with the first red trendline being the H&S neckline broken, the second trendline is new lows for the year. The other two charts are the NASDAQ and the DOW breaking the neckline and some significant lows. 

We have to on guard for a bounce attempt, but the S&P has carried far enough now that any successful retest of resistance grows less likely every day.

One word of caution and a note for new subscribers, I would consider phasing into the positions, adding some core/or other key shorts. However, a major feature of a H&S top in about half of the cases is the second chance "Kiss Goodbye" in which price rallies to the necklines that have been violated, sometimes (especially recently) a little above as the market tries to shakeout those that are stern believers of support and resistance levels as "exact numbers" rather than the correct interpretation of the levels as "areas" of support and resistance. If you think about the emotional factor that causes resistance, you will understand why they are areas and not exact numbers.

Back to the kiss, this kiss is an excellent, low risk opportunity to add to your short position. You want some now in case the kiss doesn't happen, but it's also wise to save a little room in case it does. 

So do not become overly concerned about a rally attempt, there's a lot of overhead resistance above that will provide plenty of supply.

I did get an email about an article written by someone who believes we should be on guard for a false H&S top like we saw in July 2009. We must always be on guard and that is why we have at least 25% in cash, however, the H&S top of 2009 WAS NOT a H&S top, later I'll show you why, it was a random price pattern that looked like a H&S top, but it's good to be on the watch and thank you for the article.

Our plan is working out very well, I can't imagine there are any members who got in on the core shorts that are not solidly in the green right now. Again though, do not let your guard down, do not get reckless and maintain your risk management above all else.