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HEAD & SHOULDERS


A Head & Shoulders For Fossil

06/20/08 09:45:48 AM
by Arthur Hill

Fossil formed a head & shoulders pattern and confirmation would project sharply lower prices.

Security:   FOSL
Position:   Sell

Figure 1, the daily chart, shows the head & shoulders pattern extending from March to June for Fossil (FOSL). The left shoulder formed in March, the head in late April/early May, and the right shoulder formed over the last five weeks. There was a spike low in mid-March, but I elected to ignore this candlestick and consider it an anomaly.

FIGURE 1: FOSL, DAILY. The head & shoulders extends from March to June.
Graphic provided by: TeleChart2007.
 
Neckline support holds the key to this pattern. A break below the May–June lows would confirm the head & shoulders and project further weakness toward the low 20s. The height of the pattern is subtracted from the neckline break for a target. Volume has been relatively low the last few weeks and a surge in volume would further validate a support break.

Taking a step back, we can see that a neckline break would also have long-term implications. The weekly chart (Figure 2) shows a sharp decline in January and then a consolidation the rest of the year. The right two-thirds of this consolidation contains the head & shoulders show. Within the consolidation, there was a surge in volume on the May decline (blue arrows). This tells us that selling pressure is picking up.

FIGURE 2: FOSL, WEEKLY. Note the sharp decline in January and then a consolidation for the rest of the year.
Graphic provided by: TeleChart2007.
 
A break below consolidation support would signal a continuation of the January decline. This decline was around 15 points (35%) and a continuation would project further weakness toward the low 20s as well. The green dotted box shows a support zone in the low 20s that also confirm this target area.



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.

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Date: 06/24/08Rank: 5Comment: 
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