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HEAD & SHOULDERS


THQI Challenges Resistance

03/22/07 11:43:29 AM
by Arthur Hill

THQ Inc formed an inverse head & shoulders over the last few months, and a break above neckline resistance would revitalize the uptrend.

Security:   THQI
Position:   Accumulate

There are two types of head & shoulders patterns: normal and inverse. A normal H&S pattern looks, well, like a normal H&S set. An inverse H&S pattern looks like an upside down H&S set. Once identified, the normal and inverse patterns can either be continuation patterns or reversal patterns. A continuation pattern signals an extension of the ongoing trend while a reversal pattern signals a trend change.

FIGURE 1: THQI, DAILY. The current pattern at work for this stock appears to be an inverse head & shoulders pattern.
Graphic provided by: Telechart 2007.
 
The current pattern at work for THQI looks like a continuation inverse H&S pattern (Figure 1). The stock surged from July to early December, and this established the uptrend. A long consolidation period followed and THQI formed an inverse H&S. Neckline resistance resides around 34.6 and the stock is poised to break out. A move above would signal a continuation of the July-December advance and project further strength toward 40.

Volume is an important part of a H&S pattern and good upside volume is required to confirm strength. Volume surged with the mid-February advance and the stock fell back in early March. There was another surge last week and volume was above average for three days. In addition, the on-balance volume (OBV) advanced to a new high this week, also confirming strong buying pressure.

FIGURE 2: THQI, DAILY. This stock appears poised to break out and move higher.
Graphic provided by: Telechart 2007.
 
The stock looks poised to break out and move higher, but we should also prepare for the possibility of a failure. The stock established support around 31 in late February and early March (Figure 2). In addition, there was a gap up on March 15, and this gap should hold. A move below 31 would fill the gap, break key support, and reverse the current uptrend.



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
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Address: Willem Geetsstraat 17
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Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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Date: 03/22/07Rank: 4Comment: 
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