At The Close by Teresa Lo
Looked At Market Sentiment Lately?
The volatile markets make for uneasy market participants. Keep a calm, cool, collected eye out and donít get swept away by the hysteria of the crowds.
IN the summer of 2002, market participants anxiously watched the apparent neckline breach of a massive head & shoulders top formation on the Standard & Poorís 500. From the March 24, 2000, high of 1,552.87 to the September 21, 2001, low of 944.75, the pattern measured 608 points. Subtracting that from the neckline at 944 produced a downside target of 336 (Figure 1).
The existence of the pattern was widely noted. Peter Brimelow of Forbes reported on January 7, 2002, that Richard Russell, publisher of the Dow Theory Letters, had identified it:
Massive Head And Shoulders Overshadows Market
Russellís call, therefore, has made chartists sit up and take notice.
Interestingly, none of the other letters that regularly note head and shoulders patterns ó for example, The Dines Letter and Investors Intelligence ó are talking about it now. Partly this may be because this particular head and shoulders is long term; it only becomes evident when the market is looked at over a six-year period or more. Most advisers donít take such a long-term focus. Thatís what makes Russell different: He takes a very long view.