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Hewlett-Packard is on the Slide

03/03/03 01:27:10 PM
by Andrew Hetherington

Hewlett Packard (HPQ) is completing another very nice head and shoulders pattern.

Security:   HPQ
Position:   N/A

Figure 1: Hewlett-Packard's daily chart.

The last article I wrote on HPQ (Hewlett-Packard Reboots, Advantage, posted June 25, 2002), showed an imperfect triangle formation on their chart. It revisited the September 2001 lows as suggested, and had a strong move off of the bottom from $10.92 before topping out in the $21.20 area, almost doubling from October to January 2003. However, all good things must come to an end and this is no different.

HPQ has a 4-5 month head and shoulders pattern with increasing volume on the creation of the pattern. This pattern has a double head and small shoulders. There is the customary breaking of the third fan line in the $17.00 area. This illustrates the ID (Impending Doom) to follow. There is a breakout at the neckline in the $16.50 area and I can now await a pullback up towards the neckline in the $17.00 area on lighter and diminished volume. This pullback, which should be accompanied by less activity, gives the trader confidence to take a short position. I've drawn two necklines to illustrate the "line on close" style of chart. The line on close has the neckline slightly higher in the $17.00 area.

Figure 2: Weekly chart of Hewlett-Packard.
Graphic provided by: SuperCharts.
On the weekly chart there is an incomplete 1-year head and shoulders pattern. After this next leg down towards the $14.00 support or slightly lower, a good strategy would be to accumulate a long position off of this support in anticipation of this pattern completing its destiny. Naturally, a word of caution is necessary since this pattern will be incomplete and therefore a higher risk is associated with this style of trading. However, if you have a medium to long-term time horizon you could be rewarded handsomely down the road.

In addition, I've noticed that on most occasions there is no early warning before the ID. This is unusual and makes me think Hewlett-Packard has a very tight-lipped Board of Directors.

Andrew Hetherington

Classic Dow Theorist who trades as a pure technician, using pattern recognition.

Toronto, Canada

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Date: 03/04/03Rank: 5Comment: 

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