Counter Point: QQQ Inverse Head and Shoulders Checklist
Updated
It's always better to consider both sides prior to placing a trade. Previously, we laid out a short scenario for the current pattern as a continuation pattern: (1) a break of the lower regression trendline or (2) a "breakout" on weak volume.
Here's the counterpoint: we have formed what could look like an Inverse Head and Shoulders - which is a reversal pattern (bullish). So let's walk through what we're seeing here:
Structural considerations:
1. Left Shoulder (True)
2. Head (True)
3. Right Shoulder (True)
Volume considerations
1. Heavy volume / selling on decline of left shoulder (True)
2. "The advance from the low of the head should show an increase in volume and/or better indicator readings, e.g., CMF > 0 or rise in OBV. After the reaction high forms the second neckline point, the right shoulder's decline should be accompanied with light volume" (Partly false - although the absolute bottom had fairly high buy volume, there wasn't a ton of follow through)
3. "With light volume on the pullback, indicators like CMF and OBV should remain strong" (False - OBV declined and CMF made a yearly low well below 0)
4. "The most important moment for volume occurs on the advance from the low of the right shoulder. For a breakout to be considered valid, there needs to be an expansion of volume on the advance and during the breakout" (Possibly True on CMF, not clearly true on OBV yet).
Source: school.stockcharts.com/doku.php?id=chart_analysis:chart_patterns:head_and_shoulders_bottom_reversal
In conclusion, the price structure fits an IHS, but it's not clear that the volume profile does so (yet). Any attempted "breakout" should be studied carefully as suggested in the previous idea, and any weak attempts should be shorted.
Here's the counterpoint: we have formed what could look like an Inverse Head and Shoulders - which is a reversal pattern (bullish). So let's walk through what we're seeing here:
Structural considerations:
1. Left Shoulder (True)
2. Head (True)
3. Right Shoulder (True)
Volume considerations
1. Heavy volume / selling on decline of left shoulder (True)
2. "The advance from the low of the head should show an increase in volume and/or better indicator readings, e.g., CMF > 0 or rise in OBV. After the reaction high forms the second neckline point, the right shoulder's decline should be accompanied with light volume" (Partly false - although the absolute bottom had fairly high buy volume, there wasn't a ton of follow through)
3. "With light volume on the pullback, indicators like CMF and OBV should remain strong" (False - OBV declined and CMF made a yearly low well below 0)
4. "The most important moment for volume occurs on the advance from the low of the right shoulder. For a breakout to be considered valid, there needs to be an expansion of volume on the advance and during the breakout" (Possibly True on CMF, not clearly true on OBV yet).
Source: school.stockcharts.com/doku.php?id=chart_analysis:chart_patterns:head_and_shoulders_bottom_reversal
In conclusion, the price structure fits an IHS, but it's not clear that the volume profile does so (yet). Any attempted "breakout" should be studied carefully as suggested in the previous idea, and any weak attempts should be shorted.
Order cancelled
breakout attempt does not appear robust enough to succeed.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.