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HEAD & SHOULDERS


A Failed Inverse Head & Shoulders

09/12/11 12:58:52 PM
by Koos van der Merwe

On July 14, I wrote an article titled "American Axel & Manufacturing Inverse H&S In The Making."

Security:   AXL
Position:   Sell

I concluded the article by writing, "However, the share price has now formed an inverse head & shoulders formation, suggesting a target of $13.60. With the price at $11.32, this is a comfortable return. I would be a buyer of AXL once the price moves above the neckline at $11.66."

FIGURE 1: AXL. Here's the chart showing a failed inverse head & shoulders formation.
Graphic provided by: AdvancedGET.
 
A look at Figure 1 shows that the price did rise above the $11.66 neckline on July 7, giving a buy signal, confirmed by a rising relative strength index (RSI), but it fell back rather promptly without the RSI reaching overbought levels. It retested the new high formed on July 7 three times, forming a triple-top formation and then fell back to make new lows on increasing volume at the $7.72 level.

Since then, the share price has moved sideways on steady volume, possibly forming a double bottom, to be confirmed only if the price broke above the $9.74 high of August 31. Should the price move below the $7.72 level, which could happen in spite of an RSI that gave a divergence buy signal on August 22, a buy signal confirmed as the price rose from $7.72 to $9.74, then we could see a considerable drop in price, with the RSI probably once again falling below its 32 level.

Unfortunately, patterns do fail, and the month of September, notorious for being the worst and quietest month of the year, does see many buy formation patterns fail. AXL could see the share price test new lows possibly offering a buy opportunity should a buy formation/pattern form.




Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
Phone # for sales: 6042634214
E-mail address: petroosp@gmail.com

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