A potential bearish Head and Shoulders (HS) trend reversal pattern has been forming recently on the daily chart of the Bahrain All Share Index (BASI). It’s possible that this consolidation pattern will evolve into a different pattern and will not follow through to the downside, but also a good chance that it will.
Confluence of several different factors identifying support can be used to signal when the odds for a drop are increasing.
The small uptrend line on the chart indicates the neckline or support of the HS formation. BASI has already fallen below it and has found support over several days in the area of the red line, which is the 50-day simple moving average (ema) (now at 1466.44). You can see how the 50ema has done a relatively good job of identifying support of the larger uptrend for the past eight months or so. That makes it worth watching.
In addition, the uptrend line is also currently identifying a similar area of support. Each is just another way to look at support for the uptrend. Plus, recent declines over the past five weeks have bounced off a support zone from 1466.35 to 1461.19.
Given the above analysis, a decisive drop below today’s low of 1465.94 will signal a bearish continuation of the breakdown from the HS top. At the same time a daily close below 1461.19 is needed for greater confidence that the decline might continue.