Inverse Head and ShouldersThe head is at 60.75. LS is 64.80 and RS(right shoulder) is 65.25. Possible stop below lower shoulder. Long entry is a break of the neckline (NL) with an uptrend. Looks like there was a double top before the pull back.
The head and shoulder bottom pattern occurs during a downtrend (there has to be a downtrend to reverse as this is a reversal pattern), with the left shoulder being an additional lower low for the downtrend. (In other words, the security in question looks pure awful )o:
The first peak after the left shoulder is just another expected short-term retracement upward in a ongoing downtrend. From there prices continue moving downward and make yet another lower low which creates the head. So far the inverse head and shoulders pattern is not a head and shoulders pattern at all. The head is just a lower low. Then things change if the pattern is really an inverse head and shoulders . Price fails to make another lower low, but makes a higher low. IE, the right shoulder is higher than the head. This is where those who have shorted the security in question, may become concerned.
The neckline is resistance and is a line drawn connecting the shoulders. The neckline can slope. The 2 shoulders need to be close to the same level. Not exactly the same level. If there is another low that is lower than either of the 2 shoulders, then I would exit the trade. Hypothetically, if one were to enter this trade now, (which is againt the rules (o: or say you already were in this, then the lower shoulder would be a good stop. This is hypothetical and meant to emphasize the importance of no further bottoms forming (o:
There can also be a complicated inverse head and shoulders with multiple bottoms as well. Some say a higher right shoulder in relation to the left shoulder is bullish . Also, the larger the price decrease leading to the structure can lead to a greater reversal. You can project the height of the structure upward from the neckline to get a ballpark guesstimate of where price may go.
Inverse head and shoulders do well as a rule in a bull market (If that is what we are in) Head and shoulder tops perform less than fantastic in a bull market. A head and shoulders top in a bull market, may never get through the neckline, or if it does, bounce right back over it after a short downtrend. I have seen several head and shoulder tops appear to fail recently. The opposite is true in a bear market.
Not a recommendation. Earnings 5-13. Short interest is usually on the higher side and is 7.48% depending on where you look.
Long entry before a break of the neckline can be hazardous to your health (o:.
