Head and Shoulders TopEarnings were today. Earnings can be deadly to this pattern, be it a miss or a beat on earnings.
Left Shoulder: A head-and-shoulders takes place on a chart (on any time frame), when a security rises in an uptrend to a high. Strong buying pressure drives price action to form the left shoulder. There is no way for most to realize the pattern is forming at this point unless you are psychic (o:
Head: Next, the pullback takes place. The pullback is a reflection of latecomers jump into the game and take advantage of the pull back, pushing price up to another high and the head is formed. Later, fear creeps in, and the sudden reality that they are perched perilously on a crumbling mountaintop (head). Short sellers start attacking and frightened bulls exit at the market’s mercy. The security pulls back again to the support area formed by the completion of the left shoulder. Now the head is completely formed. Many would still not know the pattern is forming at this point, but this can dissuade a person from buying tops after getting caught in one. Others love to buy tops and go with the flow of the uptrend using trailing stops. This is where indicators and understanding the market ecosystem can be helpful. It comes down to Supply and Demand .
Right Shoulder: At this area, known as the neckline (of the finished pattern), an often smaller group of hopeful buyers pushes the price up again forming the right shoulder. This time, optimism is dwindling and if the bulls can not get price over the head on this run, the right shoulder forms. The rally up that forms the right shoulder is also the perfect place for those who feel "stuck" to get out and sell.
This pattern is not valid until the neckline is broken with a downtrend and this can be a very strong source of support, until it is not. Many securities have formed this pattern and after a battle at the neckline, have gone back up to form another head and shoulders without ever completing the fall from the first one that was formed. When these securities with two head and shoulders fall, I have noticed they fall hard )o: This one, I just see the one H&S pattern in the yearly chart.
ANY pattern can form this ugly top. This one was a cup and handle that surpassed targets substantially. And ABC/D bullish pattern can do this as well, pops at C yet fails to surpass the former high at B. It is not that you can not make money, it is just important to recognize what is around you and get out on time. If there is a first shoulder, the left shoulder (can be 1 or more left shoulders), after you do a visual double take to the left, and and isolated, lonely feeling ensues, it may be time for to let go. Sometimes the scenario does not end badly, but for most folks, getting out with a profit is better than being forced out of a security with a loss.
No recommendation
I have noted a lot of these as of late so good idea to be on the look out. Any pull back can end a trend, especially a tired trend.
The trend is your friend until it is not )o:
