The inverse head and shoulder formation in the SP 500 has obviously 'worked' and is still active. The measuring objective is somewhere between here and 1245, possibly 1250, depending on where one marks the head and the neckline. There is a similar formation as indicated in the NDX chart below.
If a decline does develop it could very well retest support at 1030, and close the gaps that were left on the way up. The signal that a top is in will be the confirmed break of the trendline.
We must remember that the Fed is in the markets and providing substatial monetization liquidity which can underpin financial assets at unnatural levels. The worst mistake I ever made in markets was underestimating the resolve of the Fed to create and support asset bubbles in the 2003-07 market rally. Charts are indicative of supply and demand levels. In the case of market interventions and the correction of long term distortions their effectiveness can be diminished.
But even the mighty Federal Reserve does not have perfect latitude to operate in the markets and determine their outcome. Charts are one method of obtaining insights into their success and failure and can be particularly effective when used with other, more fundamental, sources of information.
