No, I’m not referring to the dandruff shampoo.  Instead, I’m referring to one of the more dubious patterns in technical analysis.  Head and shoulders refers to a pattern of price action that can be seen on a chart.  It comes from one facet of technical analysis, that of chart patterns.

I’ve always considered the head and shoulders pattern to be a bit goofy . . . until today, when Jason Goepfert of sentimenTrader sent out a piece on it.  I’ve mentioned the sentimenTrader service in the past.  He focuses almost exclusively on investment sentiment, but occasionally strays into other aspects of technical analysis.  What he does well is look at past occurrences of a pattern or observation, like the recently-cited “Golden Cross,” and see how the market action played out afterward.

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As you know, coming to a conclusion on what, precisely, to do with investments is very difficult.  For every positive opinion it’s possible to find one that contradicts it.  You can sense this by looking at the Strategy Recommendations in the upper right-hand corner of the blog.

Unfortunately, contrary to the title of this post, what follows won’t help you sort it out much more.  In addition to the lousy volume we’ve seen as the rally from early March progressed, another problem was the drying up of insider buying.  We use the excellent service InsiderScore (www.insiderscore.com) to look at insider activity, and their master tracker of all stocks has shown insider buying at very low levels.  Their main indicator just exited the pessimism zone.  I’ll keep you apprised as to how it progresses.   Here’s a look at the main chart (click to enlarge.)  The heavy black line is the overall indicator.  The pink zone is the danger zone; green the indication of heavy buying.

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