Understanding Stocks

LET’S GET TECHNICAL: INTRODUCTION TO TECHNICAL ANALYSIS 121
has stopped at the top of the trend, and it is about to reverse direction.
Notice the head and the right and left shoulders. The point where the
shoulders meet is the neckline.
Analysis: The stock moves higher but pulls back to form the left
shoulder. It then moves higher to form the head, which seems bullish. It
then falls back to its support level or neckline, which is the alignment
of the two support levels. The stock rises again to form the right shoulder
but fails to break resistance. Keep your eye on the neckline, because
the stock is doomed in the short term if it breaks below the neckline
(which it did in Figure 11-10). The broken neckline confirms that the
upward trend of the stock has been reversed.
Reverse Head and Shoulders Pattern (Bullish)
Unlike the bearish head and shoulders pattern, the reverse head and
shoulders is bullish. It is a mirror image of a head and shoulders pattern
and shows that a bottom has been reached. In Figure 11-11, because the
XOM Daily
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Figure 11-11 Reverse head and shoulders pattern
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12/06/02
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