Could the Dow Jones and other major indices be setting up for a head and shoulders style technical-driven sell-off? It will depend on what the Fed has to say next week, but also on the rate of deterioration in Europe and other news-driven event risk.
For the pattern to play out, some more upside may occur, but not further than about 11,600. The downside target, should the Dow slip below 10,600, would be approximately 10,000, but if the sell-off accelerates we could see a dip to the 9,600 to 9,800 level.
Which way the market goes is uncertain, but on the weekly charts the recent technical damage has created the potential for further downside risk. I began aggressively taking equity positions off the table in July, with the exception of some silver and gold miners. I encourage all readers to exercise extreme caution in the coming weeks and months as the global equity markets are extremely volatile, illiquid and therefore less volume can create much larger percentage moves.