I thought this from Mc Hugh today was very interesting:On page...

I thought this from Mc Hugh today was very interesting:

On page 13, Tuesday night, in our Daily Market report to subscribers, we show two charts, each with a potential Head & Shoulders top in formation, both Bearish. Neither are confirmed yet, however it would not take much more decline to set off a domino effect that would produce a high probability that we hit 11,500ish over the next 3 to 6 months in the Dow Industrials.



The bottom Head & Shoulders pattern is the first to worry about. It has essentially formed during the month of December. It only requires a small decline, to below 13,100ish (say to 13,000) for a confirmation of the pattern to occur. What does a confirmation mean? It means the probability of the minimum downside target being hit is pretty high. The downside target on that pattern is 12,500ish.



Why is that significant? Because it takes prices decisively below the neckline of the larger Head & Shoulders top shown at the top of the same page. If prices drop decisively below 12,724, then we get confirmation of this larger H&S top pattern, which means the probability of reaching its minimum downside target of 11,500ish becomes quite high.



So amazingly, what this says is a price drop to 13,000 should set off a high probability chain of events that leads to a move down to 11,500ish. It is possible for H&S top patterns to fail, and even possible for confirmed tops to fail, however the odds are not good once confirmed that they will fail.



Tuesday's rally looks like a small degree wave {iv} up, meaning another sharp downleg is coming. If so, we should hit that 13,000 level. Bulls must hope that the Symmetrical Triangle pattern of larger degree (shown at the top of page 14) is unfolding from July 2007. To be honest, that scenario looks solid, based upon the pattern, so we really are at a major crossroads as 2007 comes to a close. A decisive drop below 12,900 would eliminate the Minor degree wave 4 triangle, since that would be below the bottom boundary, and this pattern requires a breakout north, not south.