90 day anticlimax

THE ARGENTINE APEC meeting gave markets a Christmas present - a 90 day reprieve from the imposition of additional US tariffs on Chinese goods. Investors need to breathe deeply and quickly because like so many of US President Donald Trump's tweets, these promises are not worth the paper that they are written on. Infamous for his capriciousness, he can reverse the verbal agreement at the twitch of a twitter button - and this has significant implications for investors.

One of the most powerful and reliable chart patterns is the head and shoulder pattern. This signals a trend reversal. The pattern usually takes several weeks or, with an index market, several months to develop - and is best seen on a weekly chart. Once confirmed, the pattern is used to set downside targets which have a high level of reliability. These targets are reached in around 80 per cent of occurrences and are often exceeded - and that is bad news for investors in US markets and ultimately in our home markets.

Let us start with the classic and perfect head-and-shoulder pattern. It starts with a long-term uptrend that peaks and develops a retracement. The retracement is significant enough to be traded as a new downtrend. The retreat often breaks below an existing long-term trend line.