Potential Reverse Head & Shoulders Pattern
Updated
Potential left shoulder lasted almost 2 years, potential head took about 6 months to complete, potential right shoulder has only put a few months of consolidation in so far. It looks like the company has been buying back stock pretty aggressively over the past nearly 2 years (I can't see any further than that since I don't subscribe to TradingView yet) as total common shares outstanding have decreased by about 9 million during that time. As you can see in the market capitalization chart, the potential right shoulder is actually cheaper than the potential left shoulder as price per share is about the same but the market cap is lower. Price does not need to consolidate for 2 years but it could (and could consolidate even longer). A monthly close above $10 would be a good sign the rise is underway but of course, as always, it could prove to be a false breakout. The stock also pays a nice dividend of over 5% currently (which of course could always change but it has paid out consistently over the past few years and has been increasing over time, although it hasn't increased since early 2019). This provides nice potential income while waiting or could wait for the potential breakout to get in. Stop loss is a monthly close below the 50 month EMA, which is currently just over $9. **see disclaimer below** *also see a link to an idea by ChristopherCarrollSmith that got me thinking about the concept of dilution - I wouldn't have included the thoughts about the market cap of this stock without reading that idea recently*
**These are just my personal notes about this stock and analysis of an intermediate-term chart pattern, which could very well prove to be a false pattern. The monthly close stop loss is riskier because price could absolutely fall apart in a month's time but I don't want to get stopped out prematurely as you can see price has briefly dipped below the 50 month EMA from time to time in the potential left shoulder and I don't mind taking on more risk because I manage a diversified portfolio, so whatever happens with this individual stock will not "break the bank" for me. Therefore, if you decide to follow any of this, trade at your own risk.**
**These are just my personal notes about this stock and analysis of an intermediate-term chart pattern, which could very well prove to be a false pattern. The monthly close stop loss is riskier because price could absolutely fall apart in a month's time but I don't want to get stopped out prematurely as you can see price has briefly dipped below the 50 month EMA from time to time in the potential left shoulder and I don't mind taking on more risk because I manage a diversified portfolio, so whatever happens with this individual stock will not "break the bank" for me. Therefore, if you decide to follow any of this, trade at your own risk.**
Note
I updated the chart so the 200-month EMA shows up better. It's just under $10 currently which I indicated in my initial post is a significant value to make a monthly close above. The more time it spend in this potential right shoulder consolidation the more strength it would add to a potential rise. The less time it spends, then it increases the chances of going through a false breakout IMHO.Note
Will add to my position if price can maintain this breakout until the end of the month, if price gets carried away and goes too high before month-end I may just ride my initial position. I wouldn't be surprised to see it reverse by month-end though, that's why I'm waiting. I also have an open limit buy order at $9 in case it gets down there again. Stop loss is still the same as indicated in the comments above.Note
Added on a monthly close breakout. I didn't double down but added about 2/3 the amount of shares I originally purchased. Stop loss parameter remains the same for now as I'm skeptical this might be a false breakout and, if so, price would hopefully continue it's right shoulder consolidation.Note
Looking good so far, hoping for a monthly close above $11.35 otherwise price may consolidate the breakout for a while.Note
Continues to look strong, nice close last month.Note
RSI is getting into overbought territory but that doesn't necessarily mean anything. Just something to consider in the overall analysis.Note
Not a good month of price action but I feel they (whoever they is, definitely not me) are just shaking out the short-term traders that jumped in on the breakout. RSI ended up not closing above 70 so still waiting for that signal; however, this could definitely end up being the top and I need to be careful. I have updated my stop loss to a monthly close below the 200-month EMA (which is currently about $10). This would result in about a break even but (as I've stated before) price could absolutely fall apart mid-month. If that were to happen I might just consider buying more rather than selling. Anyway still holding for now and hoping this is just a short-term shakeout before it potentially heads higher.Note
So far, price held exactly at the 50-month EMA and is back just above the 200-mo. I'll make a decision on what to do in a few days but encouraged by recent price action bouncing off the long-term EMA. Still feel this is just a shakeout (and an effective one at that) we'll see what happens over the next few days...Note
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I will continue to hold this for another month and see what happens. A retest of the 50-mo. EMA would probably be bad but I'm making decisions on what to do based on monthly closing prices because I'm tired of getting just barely stopped out during a few days of volatility that are usually just noise. Most people don't do this - they are too short-sighted and afraid of losing money to use this strategy, which is why I like it and it also helps me be more patient. It can be very risky though if the market crashes but, as I've said previously, if that happens I probably won't sell and instead will just buy more.Note
Boy, sometimes you read an idea and it changes everything, love this site and learning new things from other traders on here. Here is an updated chart of this stock adjusted for dividends based on an idea I read this morning from ChristopherCarrollSmith. Yes, I still feel that this is a short-term shakeout but there may be more downside coming yet. I have updated the chart below, adjusted for dividends since this stock pays a nice dividend. As you can see, we may be headed to the 50-mo. EMA on this new chart and I would expect price to find support there on a monthly closing basis. If it closes below that at the end of a month I think that would spell trouble and it would be headed for the 200-mo. EMA on this updated chart. Anyway, good stuff. I enourage anyone reading this to check out ChristopherCarrollSmith on here as I have learned some useful tricks from him.Note
The 50-mo. EMA on this new chart is currently close to the same level as were I originally bought in the right shoulder consolidation, adjusted for dividends I have received since opening that position. And not too much pain from where I added on the breakout of the right shoulder consolidation.Note
I also just noticed that price failed at the all-time high (adjusted for dividends). Makes more sense to me now why it failed where it did.Note
Based on the chart I was using before (that's not adjusted for dividends), there appears to be a ways to go before the all-time high is tested but not the case on this new chart. This could indeed be the top as I've stated before and I need to be careful.Note
Nice recovery this month. If price can break out above what is now a long-term double top just under $12 (on the new chart adjusted for dividends) then there's no more resistance and no telling how high it could go. They (again, whoever they is) may still want to take it down to the 50-mo. EMA or it could also fall if there's a market correction. Anyway, kind of in no man's land at the moment but this past month of price action is at least encouraging.Note
Not a good month last month, looks like it wants to head to the 50-mo. EMA, depends what oil prices do I suppose more than anything else.Note
Haven't updated this in a while... continues to churn sideways on the chart adjusted for dividends near all-time high. Hoping it can break through that strong resistance. If not, then needs to hold support around the 50-mo. EMA.Note
still hanging on just above the 50-mo. EMA.. this stock has been consolidating for about a year now, should decide to head one way or the other soon, hoping it will head higher but time will tell..Note
The chart that's not adjusted for dividends doesn't look good and looks like temporary support here around $9 - $9.25 will eventually break lower. Based on that I'm thinking about selling and would buy back in if price can get down to the 200-mo. EMA on the chart adjusted for dividends. Not sure at this time what to do, I'll provide an update when I decide.Note
With that said, the market cap is about the same as it was the last time it tested the 200-mo. EMA on the chart adjusted dividends, appears due to continued buybacks of the stock by the company, so considering that I think I'll hold and hope a double bottom holds in market cap value.Note
Pretty decisive breakdown in price and market cap. I'll probably sell out of this tomorrow on monthly closing price. I'd be looking to possibly re-enter at the 200-mo. EMA.Note
Selling out of this today unless it has a miraculous rally in the next hour. Might be a good value in market cap if price retests the 200-mo. EMA.Note
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In hindsight, I tried trading on a shorter term reverse head and shoulders pattern. Usually you can expect to gain about as much as the drop that formed the head and that happened. I should have taken that quick gain and got out. If the right shoulder would have taken longer to form, then it might have headed a bit higher. I usually like to hold stocks for a quite a long time but anyway I need to learn from this trade. With that said, the market cap was the kicker that kept me in. While price rallied the market cap didn't really. I really liked that divergence but the rise in stock price appears to be mostly just from stock buybacks when you look at the market cap compared to price action. Anyway, that concept is still intriguing to me with this one but I think I might be able to get back in at better value in the next 6 months to a year.Trade closed: stop reached
Note
The market cap is currently ~265M at a price of ~$8.25 (according to the chart). Market cap was ~300M when price closed at $6.70 in March 2020 (according to the chart). According to this site, there's about 36M shares outstanding, so if it tests the 200-mo. EMA, which is currently around $6.50, that would be a market cap of ~236M. The market cap chart appears to be off based on that simple observation, market cap should currently be around 300M at current price with number of shares outstanding. Anyway, regardless of that I like that it appears that this company is aggressively buying back stock, just looks like it's breaking down and I'm looking for the potential for better value.Note
Still watching to possibly re-enter if it gets down to the 200-mo. EMA. So far it looks like I got faked out but it's not decisive yet.Note
Definitely decisive now, what a month for this stock! Too bad I didn't stay in, oh well. I don't want to chase but will be watching for a pullback (as I have been) to possibly get back in. Still intrigued by the divergence between stock price and market cap in this one.
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