I began to become suspect of the validity of the head and shoulders on Sunday as I researched for this week's watchlist. The fact that mass media (CNBC and company) had been talking bout this bearish chart pattern for days on end told me that if we get any kind of spark, it could result in a violent short squeeze higher as all those bears who initiated short positions last week on the brief break under 876 would be forced to cover. In addition, options expy week adds some fuel to the fire as option shorts are squeezed and must chase stock to hedge their short options, thus bidding up the market. Throw in a packed week of earnings and you got one big whipsaw squeeze effect.
Sometimes when a chart pattern looks so perfect that you think it just can't be wrong, it can be a great contrarian signal if that sentiment leading into the pattern formation gets too overextended in one direction. That's what happened.
So what happens the rest of the week? Tough call really. I would think we consolidate lower and drift. Would not be surprised to see the gap filled by Friday either. However, if the market closes above 930 for the week, then you gotta adjust your bias to the bullish side once again and say that 870 swing low from last week will stand.
I am keeping it light and waiting to see how the week finishes up and then re-evaluate going into next week.