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HEAD & SHOULDERS


Tibco Breaks Neckline Resistance

10/20/03 09:47:17 AM
by Arthur Hill

Tibco Software (TIBX) signaled a continuation higher with a neckline breakout confirmed by volume and relative strength.

Security:   TIBX
Position:   Buy

After an advance from below 4 to above 6, TIBX formed an inverse head and shoulders pattern of the continuation variety (as opposed to the reversal variety). With the prior move up, only two possible patterns could form: a bearish reversal or a bullish continuation. It may sound silly and obvious, but bullish reversals and bearish continuation patterns are simply not feasible in an uptrend. The inverse head and shoulders is typically bullish and this version would be considered a bullish continuation pattern.

Graphic provided by: MetaStock.
 
The neckline breakout confirms the pattern and projects further strength to around 7.5 (6 - 4.5 = 1.5, 6 + 1.5 = 7.5). The target is found by subtracting neckline resistance from the low of the head and adding the difference to the neckline breakout. Even though 7.5 is the initial target, the breakout could extend higher and should be considered bullish until proven otherwise. A move below support at 5.5 would signal weakness and a decline below the low of the right shoulder would be bearish.

Volume and relative strength confirm the breakout. The move above 9 occurred on the highest volume since 20-Jun. A low volume breakout would be questionable, but a high volume breakout is robust and suggests plenty of fuel to sustain an advance. In addition, On Balance Volume (OBV) broke above its June high to confirm strength. It would have been preferable to have OBV leading the way higher, but a simultaneous confirmation is bullish all the same. In addition to OBV, the price relative broke above its May and June highs and TIBC shows excellent relative strength.



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.

Title: Editor
Company: TDTrader.com
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Date: 10/20/03Rank: 5Comment: 
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