October 28, 2008
Head and Shoulder Pattern – JHX
By Planet Wealth
Today JHX produced an ideal entry signal for us in the trading room.
On the daily chart of JHX there is a Head and Shoulder pattern (H&S). These patterns are a bearish signal. When the neckline of the H&S is broken, there is a very high probability of the stock travelling the same distance from the neckline down, as measure from the top of the head to the neckline. JHX broke the neckline at $4.55 and is now likely to reach around $3.85, which also happens to be the next major support line.
Supporting the break out, was also higher volume than the previous day. Volume is a key factor in entry signals. It tells us there are high amounts of the stock changing hands. If it is a down day they are sellers and if it is an up day they are buyers.
(click on images to enlarge)
One of the indicators added to the probability of this trade is the Bollinger bands (BB). BB’s measure the volatility of a stock. The wider the bands the more volatile the stock is and it is more likely to travel sharply in the said direction. You can see in the chart below, the bands have turned out wide. The price action has also closed outside the bands, which again adds probability of the stock continuing the go.
for more information please visit: http://www.planetwealthtradingroom.com
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