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HEAD & SHOULDERS


Head and Shoulders Double Take

06/20/03 08:26:46 AM
by Arthur Hill

Sell YELL.

Security:   YELL
Position:   Sell

Yellow Corp (YELL) has head-and-shoulders patterns working on both the long-term weekly chart and medium-term daily chart. A neckline break in the daily chart would project a decline below neckline support on the weekly chart and presage a steep decline.

On the weekly chart, YELL is holding above the trendline extending up from Oct-98, but appears to be tracing out a massive head-and-shoulders reversal with neckline support at 21. The pattern traced out a double head in 2002 and the right shoulder has yet to be completed. A move to 21 would complete the right shoulder and further weakness below 21 would project a decline to around 10. The projected decline is found by subtracting the neckline from the top of the head (32.68 - 21 = 11.68). This difference is then subtracted from the neckline for a downside target (21 - 11.6 = 9.32).

Figure 1: Weekly chart for YELL.
Graphic provided by: MetaStock.
 
In an interesting twist, YELL also appears to be forming a head-and-shoulders pattern on the daily chart. Instead of a reversal, this version is a continuation pattern that would be confirmed with a support break at 23.5. The stock declined from 33 to 21 to set the stage for a medium-term downtrend. The advance to 28 retraced a Fibonacci 62% of the prior decline and formed a rising wedge. The rising wedge break is already bearish (red arrow), but the stock clearly has support at 23.5 and a move below this level would be the final straw. A support break at 23.5 would project further weakness to around 19, which in turn would break the big neckline and signal lower prices in the weeks and months ahead.


Figure 2: Daily chart for YELL.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
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