Long Term H&S Pattern with a Completed Intermediate H&S PatternHead and Shoulder pattern are one of the most reliable patterns. And when you think about the psychology behind them it makes sense why. Essentially natural gas pricing in the long run is driven by fundamentals but speculators who trade solely on technical analysis add gasoline to the fire to cause massive price dislocations. The H&S pattern is an example of this. Fundamentals drive the price up. Speculators participate forming the left shoulder. Profit taking ensues completing the left shoulder. Speculators then tap the well again to form the head. At this point fundamental traders(hedgers like large commercials) can’t pass up the massive price dislocations and lock in large profits for future deliveries. Speculators panic and close longs once they lose control. Right shoulder is forming. Speculators will try to tap the well again thinking they can control the large commercials. Large commercials allow them to be right for a short period so they can sell even more future deliveries. In the end the commercials win out and price goes lower. Neckline complete. Speculators panic and massive selling ensues. The expected move to complete the pattern would be the distance from the head to the neckline in terms of percentage. So a $5 head and $3 neckline means a 40% target lower from the $3 neckline. $1.80 seems like a lofty price target. Price targets are suggestions in patterns. They are not absolutes.
These patterns fail as well so while this pattern is forming technically, it is not complete. In my experience, anticipating patterns has a 100% failure rate.
