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HEAD & SHOULDERS


Verisign Nears A Pattern Test

02/21/07 09:48:28 AM
by Gary Grosschadl

After hitting a two-year high in the mid-$30 range and a low of $16, where is this stock headed?

Security:   VRSN
Position:   Buy

Figure 1 shows a large head & shoulders bottom with a slanted neckline. Note the classic candlestick bottom hammer that marked a reversal point at the head.

What is interesting here is a hint that the neckline will be successfully broken to the upside. Note how the stock closed above the ever-important 200-period EMA for the first time in nearly 18 months. This may be an important harbinger of things to come. Confirmation of this optimism will be a sustained close above the neckline.

FIGURE 1: VERISIGN, WEEKLY. This chart shows an interesting pattern hinting at upside potential.
Graphic provided by: StockCharts.com.
 
The upside target range is mused at $33–$36. This is determined by the previous high-water marks and the completion target of this head & shoulder pattern. The fulfillment target of any head & shoulders pattern is a move equal to the distance between the neckline and the bottom hammer. This is roughly 10 points and would equate to $36, just beyond the previous peaks.


Several indicators are considered. The directional movement indicator is bullish with its three components bullish poised. The average directional movement index (ADX) is upsloping above 25, the DIs (directional indicators) is either side of the ADX, and the positive (+DI) above its negative counterpart. Below the chart, the moving average convergence/divergence (MACD) is bullishly above its zero-line. Note the telling positive divergence relating to the head or bottom. The stochastic oscillator shows a bullish high turn while the Chaikin money flow indicator (CMF) also shows a powerful divergence and a bullish shift to buying power. All this seems to bode well, so watch for a likely bullish outcome at the neckline.



Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

Website: www.whatsonsale.ca/financial.html
E-mail address: gwg7@sympatico.ca

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Date: 02/22/07Rank: 5Comment: 
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