Understanding Stocks

122 UNDERSTANDING STOCKS
stock moved strongly past the neckline on rising volume, it’s a good
time to buy.
Analysis: The stock drops to $34.25, then reverses direction to
form an inverted left shoulder. It then rallies until it hits resistance and
retreats, forming the head at $34. Once again, the stock rises to resistance
and falls to $34.50, where it forms the inverted right shoulder.
The stock then retreats briefly but reverses direction, breaking through
resistance and advancing strongly. Once it breaks the neckline, the
stock is temporarily unstoppable.
Double Top (Bearish—Looks Like an M)
The double top is a common bearish pattern that shows two peaks at the
same price level. The stock has twice failed to break through the resistance
level; this indicates that you should switch from buying on the
upside to selling. When the stock tries to break through the top of the
second leg, it will probably fail and sell off. The stock could consolidate
for weeks or months before breaking down. Figure 11-12 is an
example of a double top.
In this example, the stock falls sharply after twice failing to break
resistance at $19.25 a share, forming the double top. Notice that a very
bearish triple top has been formed at $18.75, setting this stock up for a
short-term fall. If you were a technician, you would sell your long position
or sell this stock short.
Double Bottom (Bullish—Looks Like a W)
The double bottom is a very common bullish reverse pattern. The
stock has failed to break through key support levels, indicating that
you could switch from selling on the downside to buying on the
upside. The stock could consolidate for weeks or months before breaking
out to the upside, however. Figure 11-13 is an example of a double
bottom.
In the example, Coca-Cola falls to its support level of $44.90. The
bulls think they are in control when the stock temporarily rises before