Slicing the Neckline: A Classic Technical Pattern

A Classic Technical Pattern Agrees with the Elliott Wave Count: Slicing the Neckline

August 17, 2010

By Elliott Wave International

In the August issue of his Elliott Wave Theorist, market forecaster Robert Prechter alerted readers that the U.S. stock market was slicing the neckline of a classic head-and-shoulders pattern in technical analysis, and that this may send the market into critical condition.

Prechter said that when the Elliott wave count and a head-and-shoulders pattern are saying the same thing about the stock market, it’s best to pay attention.

Read some of the latest nuggets directly from Robert Prechter’s desk — FREE. Click here to download a free report packed with recent quotes directly from Prechter’s Elliott Wave Theorist.

Here’s how the August issue of the Elliott Wave Financial Forecast, the sister publication to Prechter’s Theorist,¬†described the head and shoulders pattern unfolding in the stock market:

“The weekly Dow chart [below] shows the development of an intermediate-term, head-and-shoulders pattern from the January high at 10,729.90 to the present. The January high marks the left shoulder, the April 26 high at 11,258 is the head, and the right shoulder is now ending. The April [Theorist] discussed the pertinent characteristics that Edwards and Magee used to define this technical pattern … all apply to the current formation. Observe how weekly stock trading volume has contracted during the development of the right shoulder, a necessary trait of this pattern. The downward-sloping neckline — exactly as on the big ten year pattern — displays market weakness, which is consistent with our interpretation of the wave structure.”

This chart shows the head-and-shoulders pattern.

Total U.S. Stock Market Volume

Here’s what Robert Prechter himself said in a recent Elliott Wave Theorist:

“Generally, when the neckline slopes downward, the right shoulder does not rise to the level of the left shoulder …”

Please look at the chart again — then re-read Prechter’s quote.

Read some of the latest nuggets directly from Robert Prechter’s desk — FREE. Click here to download a free report packed with recent quotes from Prechter’s Elliott Wave Theorist.

This article was syndicated by Elliott Wave International and was originally published under the headline Slicing the Neckline: When the Market May Go into “Critical Condition”. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

1 Comment

  • Christian

    January 18, 2015 at 11:26 am Reply

    Ramki,You get it- the extended 3rd. The 5th will liekly take much of 2010 to complete.As i posted at Yelnick’s, the coming 4th of 1 is an uncrash’ when most expect/predict the next leg down for the bear.It is the typical EW’s impulsive Cycle/Primary 1st waves reaction at momentary highs and small corrections. The corrections are always characterized by the doomers. It stiil amazes one when the indices get oversold with one or two down days!You appear to have this coming 4th as a ZZ but I expect a flat to about 10,000. Gold looks like a sideways complex trading range to me for a few months at least.wave rust

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