Tuesday, March 31, 2009

Head and Shoulders?

2009-03-31_2136.png


Rules on head n shoulders pattern:


A. A strong rally, climaxing a more or less extensive advance, on which trading volume becomes very heavy, followed by a Minor Recession on which volume runs considerably less than it did during the days of rise and at the Top. This is the “left shoulder.”



B. Another high-volume advance which reaches a higher level than the top of the left shoulder, and then another reaction on less volume which takes prices down to somewhere near the bottom level of the preceding recession, somewhat lower perhaps or somewhat higher, but, in any case, below the top of the left shoulder. This is the “Head.”



C. A third rally, but this time on decidedly less volume than accompanied the formation of either the left shoulder or the head, which fails to reach the height of the head before another decline sets in. This is the “right shoulder.”



D. Finally, decline of prices in this third recession down through a line (the “neckline”) drawn across the Bottoms of the reactions between the left shoulder and head, and the head and right shoulder, respectively, and a close below that line by an amount approximately equivalent to 3% of the stock’s market price. This is the “confirmation” or “breakout.





The only thing I'm not really sure about is the volume. Anyone out there have any thoughts on the possibility of this being a head and shoulders? Perhaps it's a bit of a stretch.





UPDATE: Check out Nasdaq's head and shoulders here.


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