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.