First bottom test: S&P 900 key

The reversal head-and-shoulder pattern will face its first big test Friday. The S&P is the index to watch as 900 needs to hold on a closing basis for the pattern to remain valid. The Nasdaq has a little more room because the nature of the neckline is angled and therefore the right-hand-shoulder will have a lower low than the left.


For the Nasdaq the right-hand-shoulder may be viewed as a traditional double bottom reaction low (with a neckline around 1,675). The early October double bottom was violated by the break to new lows in late October.


Should the S&P violate 900 as support by the close of business then the next target is the October reaction low of 850. Irrespective of 900/850 support the neckline at 1,000 would remain the confirmation level to a bottom. Technicals are mixed with a bullish 'buy' in Money Flow but a bearish 'sell' for stochastics.

A closing break of 850 means the downtrend resumes and the bottoming process is reset to zero.

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Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website