Figure 1: Hewlett-Packard's daily chart.
The last article I wrote on HPQ (Hewlett-Packard Reboots, Traders.com 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.|
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