|In the chart below you can clearly see an inverse head and shoulders pattern in the making. The question is, has the right shoulder fully developed or has it a way to go?|
|The RSI indicator is suggesting further downside because it is moving downwards from an overbought position, but the JM internal trading band has given a second buy signal, and the pennant, if it could be called that, has also suggested a buy signal as the price broke out of the upper downsloping trendline. Finally the close did test the resistance level at $10.82, actually exceeding it with the high of the day, but then fell back to below resistance. Now what will happen?|
|Head and Shoulder or Cup and Saucer ?|
|Graphic provided by: AdvancedGET.|
|Those who were lucky enough to have bought the share at $6 or less should place their stop orders as close to the high reached as possible. For some verification, a recent article in Technical Analysis of Stocks & Commodities proved that a 5% stop from the high was the most profitable. Those who are tempted to buy at present levels because of the JM buy signal are hesitant because of a downtrending RSI indicator. So we then look to the cup and saucer buy signal, which would be a closing price above $10.82 as the buy signal with a possible target of $16.|
|I arrived at the buy signal using the following equation. |
The depth of the cup: 10.82 - 4.84 = 6. (rounded off)
10.82 + 6 = 16.82, which I have rounded off to $16.00.
This share should be watched for a future trade.
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