HOLY COW – WHAT’S NEXT BATMAN!?!

BawldGuy Here: How cool is this? After a very nice phone conversation with my friend and mentor Max Whitmore, I offered him ‘carte blanche’ writing privileges here. He can write a post a year or a post a day — his choice. As I opened my laptop this morning I was surprised to see he’d sent me a post.

Though I don’t recommend stocks, in fact I stay away from them, and always have, Max’s understanding of current activity is profound. It’s allowed him to predict with scary accuracy, (not perfect, but scary) what is most likely on deck. This is relevant to real estate investors cuz it speaks to the economy in general. Make sense? It sure does to me.

For those who know of Max, his investment career as a ‘Chartist’ has been iconic. He’s not missed a major market move in almost half a century. He’s the real deal, people. Sorry for runnin’ on here, but I’m a bit giddy. Here’s Max.

Written By — Max Whitmore

It has been a long time since I sat down to write a column, but today seems like a really good time to do it! I have been enjoying my retirement a lot, but I must admit that I do miss writing when an exciting (of course, that is a relative choice of words, depending on whether you are long or short) event is unfolding on the charts. And believe me this one is exciting!

I will not make this a long one today, but one that just tells you what might be the coming attractions, say for 2-3 months or so. I have attached a chart that says it all. Now understand it is a relative short look in time, just 9-10 months worth, but it shows the key formation that is about to mature – that is break below the NECKLINE of the head and shoulder formation.

You can see the original shoulder (the left one) that formed back in Jan-Mar of this year. It took just a bit more than three months for the head to form and only two months for the right shoulder to form, the shoulder that is the key to this formation.

Head and Shoulder Formations

Head and shoulder formations are one of the most reliable formations when they “mature.” By that I mean, the moment in time when the action that is implied by the formation occurs. Most often, this is a signal demonstrated by the crossing of some line on the chart formation. In the case of a head and shoulder formation, it is the event called “crossing the neckline.”

This is a down formation, so crossing down the neckline is the signal here.

?

Ok, cut to he chase.

We will need to see a close of the S&P (this is the CASH index) this coming Friday night BELOW the neckline, which is about at the S&P 1260 level. A close below that level says the formation is MATURE and this is what occurs 85-90% of the time after maturity.

First, expect that the price will weaken somewhat, say to the 1225 area (give or take 8-10 points). It should stall there, typically. Then, watch for a move back up toward the neckline. Once that “pullback” move reaches the neckline, expect another stall. Now, the real move indicated by the formation will occur -– remember 85-90% of the time. Nothing is 100%, as we all know.

You will note a vertical red line on the chard captioned “EXPECTED DROP.” This line is derived by measuring the distance from the top of the head to the neckline then extending that distance down from the neckline to the ultimate first target level. I have drawn in the same red line below the neckline, as you can see. Now, note that the EXPECTED DROP line ends at about my Super Chart Keyline, one of my most valuable lines over the years. The reading at that point should be about 1160-1170, or about 100 S&P points drop from the neckline.

OK, for the moment, that is about the best I can give you. Look for a bit more weakness, followed by a pullback, then the real thing a drop of 100 S&P points to “FULFILL” the formation.

I would not be long stocks in here, I would likely be making some money by selling Calls on stocks I own –- 90 day the longest call period. I would be setting up price point for buys of stocks I want to own for the next 10 years, using a PE of 12 or less, the best dividends I can find, and preferably cash rich companies in the food, natural gas, medical, and tech stocks, guys like Johnson & Johnson, Intel, McDonald, and any of the big Master Limited Partnership gas producers.

Well, I said I wouldn’t be doing much this time around, except to tell you what the next few months might look like. Hope you find it useful. As always if you have questions about the formation, give your feedback to The BawldGuy.

And as ever, you keep in touch, I do! See you again soon.

Related posts:

1. Munchin’ On The Numbers
2. Welcome Max Whitmore – What Is the Super Chart Saying Lately?
3. Taking A Pause To Rebound