Last week we anticipated a possible head and shoulders top (HST) pattern forming for the NASDAQ Composite. This week saw the right shoulder form on Tuesday and the pattern was completed when the index closed below the neckline on Friday. The HST is one of the most reliable bearish continuation patterns as we discussed in our July 16, 2011 newsletter. The chart shows that there is the potential for support at around 2320 but the target price for this pattern is just below 2200, That's 10% below Friday's close and 30% below this year's high. (The target price is measured down from the neckline a distance equal to the distance from the neckline to the top).



Friday also saw the trend reversal signal for the NASDAQ turn bearish putting three of our signals on a downward trend.

There were 26 breakdowns this week compared to just 10 breakouts. This is another bearish indicator in addition to the chart above and our trend reversal signals.

At the request of a subscriber I have modified the Stock Timeliness tool to include the results for short positions.

There is now a 'Long' button (see below) which will simulate opening a position when the trend is 'up' and closing it when the trend changes to down. Both the buy and sell prices are from the next day's open.

The 'Short' button simulates opening a short position when the trend is 'down' and covering the position when the trend turns to 'up'. Again, the next day's opening prices are used.

I was also asked to add the maximum drawdown in each case - I'll add that next week.

Example of Using the Stock Timeliness Checkup Tool for Short Positions

Here is an example of applying the Stock Timeliness tool to Bank of America (BAC) since October 1, 2007 until yesterday using the DJI Trend Reversal signals.

If you had traded BAC using long position reversals only you would have made 24% profit - not bad considering the stock lost 87%!