Moody’s Corporation (MCO) may be facing a reversal after reaching about $525 in July. The stock is showing a Head and Shoulders pattern, which suggests a potential trend change. The Left Shoulder formed around $495 in June, the Head peaked at $525 in July, and the Right Shoulder appeared near $498-500 in early October. These peaks followed upward trends that have now been broken. The neckline, located at $468-470, is a vital support level, currently being tested as the stock trades between $479 and $481. If this support is broken, it could lead to significant price changes. A calculation of potential movement suggests a target between $413 and $415, implying a drop of more than 13% from the neckline. For those tracking the stock, a close below $468 with strong trading volume could confirm a bearish outlook. On the other hand, bulls would need the stock to rise above $490-500 to weaken the Head and Shoulders pattern. Moody’s performance is often tied to wider credit market trends, highlighting the importance of technical signals. Keeping an eye on the $468-470 area will be crucial in the upcoming sessions, as it might indicate a larger market pullback. Given the troubling Head and Shoulders pattern forming in Moody’s (MCO), we are closely monitoring the $468 neckline. The stock is currently just above this critical support level, and any significant drop below it could suggest a major trend change. This setup is especially concerning because MCO’s success relies heavily on the stability of credit markets. This chart pattern is not isolated, which strengthens the bearish viewpoint. Recent data reveals a 15% increase in third-quarter corporate bond defaults for 2025 compared to last year. Additionally, the Fed chairman recently cautioned about increasing “pockets of leverage” in the financial system. The VIX, a measure of market fear, has also traded above 20 this month, a clear change from the calmer summer months. For traders expecting a downturn, purchasing put options is a straightforward approach. A decisive drop below $468 on high volume could prompt consideration of puts with strike prices like $450 or $440, aiming for a move down to the $415 level. This provides a clear, defined risk strategy for the anticipated 13% decline from the pattern. A more cautious strategy would be to sell bear call spreads. By selling a call option around the $500 strike price and buying a higher one for protection, traders profit if MCO doesn’t rally above its right shoulder. This method gains from both a price drop and time decay if the stock remains below resistance. We have seen similar patterns during past economic difficulties, and it’s a lesson worth noting. Historically, MCO shares reacted sharply to credit market fears during the 2020 flash crash and the 2008 financial crisis. The current technical weakness, along with a declining credit environment, suggests we might be witnessing a repeat of history. On the flip side, if bulls manage to hold at the $468 neckline and the price goes back above $500, this bearish pattern would be invalidated. Such a movement would indicate underlying strength and could trigger a short squeeze, prompting a shift away from bearish positions. In that case, traders may quickly switch to buying call options to capture the renewed upward momentum.

here to set up a live account on VT Markets now