So there are lot of questions to if the Head and Shoulder reversal pattern is confirmed on $AAPL.
Many traders are coming out with different ideas what it means to confirm the head and shoulder on $AAPL.
Hopefully I can contribute to satisfy some of those curiosities.
Duration of the Formation
Technical analysts say that Head and shoulder should form in the period of 2-3 months to be a textbook HnS pattern.
However we’ve all seen HnS pattern that has formed before 3 months period time so I usually don’t put much weight on that however for this $AAPL HnS formation I do put much weight on it. Because of the left shoulder being wider than right shoulder, we might be bouncing off of 50EMA and forming wider right shoulder to match with left shoulder duration.
If that happens, it isn’t good for bears (sux for me) since the earnings is on this month.
Where do you Draw the Neckline?
This is VERY important because you can say it is confirmed or not confirmed by looking at the neckline and see if that neckline is broken or still holding.
Let’s assume that the right shoulder has been confirmed.
Technical analysts know that when drawing important pivot areas, you draw from the closes which means we flip it to the line chart to draw the line effectively.
It looks like this when we flip back to the Candle chart.
So if we draw the neckline from the line chart, you can see that we have broken our neckline and it seems as though, we are kind of testing that neckline as new resistance today.
And this is how I drew my neckline and I confirmed from my analysis that this Head and Shoulder pattern is valid and confirmed. However these things don’t ALWAYS play out like the textbook.
Drawing it under the Candle Wicks
You can see that all of those wicks are confirmed that we have support in that area.
If we do this, the HnS pattern has NOT been confirmed and it is still testing that support/neckline area because today we did not close below that support with strong bearish candle.
If this is true, than we might be bouncing off of this neckline support and come back up and test that resistance of $680.
Subsequently and possibly, it is forming a wider right shoulder to match the duration of the left shoulder. And this could happen for the next 2-3 weeks and bears don’t have that much time because of the earnings.
Bounce from 50EMA?
Possibly and that could become a catalyst for $AAPL to bounce and just continue bullish like so many investors want.
But you see I am not so worried about the 50EMA as much as this Head and Shoulder pattern. That’s what the most traders are looking at and that’s what is going to determine if this stock is going to continue bullish or just straight up TANK.
Since I am holding PUTS, I will need this to tank so I myself am trying to figure this out. Obviously we will have more data tomorrow to work with but as far as today close is concerned, I am not too worried because of other significant reversal signals at the top.
So is it a Confirmed HnS or Not?
*2010 Oct – Today
Looking at it in the big picture, I am NOT completely convinced that it is confirmed.
Looking at it in the pure technical point of view, with the line chart drawing, Yea…. but I am just not satisfied.
So there you have it. I will update more tomorrow, hopefully we will have more clear picture.
– HnS NOT Confirmed Yet
-We had a long-legged Doji yesterday and today we bounced with good looking white candle thus forming a Morning-Star Reversal pattern. This is a bullish reversal signal when it happens at support (Support $655)
-HnS Pattern is NOT yet confirmed and at this point we are not going to validate the line chart drawing neckline. But going with candle lower wick supports/neckline at around $655.
-As I have talked about it in previous post that we probably going to form wider range of right shoulder just to match the left shoulder to fulfill complete HnS pattern.
-As you can see on my chart that $688 is going very solid short-term resistance. About 6 times we’ve hit that and retraced last two months. So I am pretty sure we are going to get up there this week and test that resistance once again. I do believe we might be forming a short-term tight channel consolidation between price point of $688 and $655 until it breaks on either side. We do not know which way it is going to break but we do know that we are going to be stuck there for a while. (few weeks IMO).
-To make this HnS pattern confirm, we MUST close below $655 area with good looking bearish candle.
-Take a look at my averages (I use 10,20,50EMAs and 100, 200SMAs – works great for me to figure out shor-term trends and as well as long term trends). You can see that 10 & 20 EMAs have been just pounding on this thing all the way down to 50EMA.
-50 EMA says ‘No way’ and pushed it back up and now we are stuck just in between.
-What is this mean? I means.. we are stuck. lol its true.
-Which way is it going to go? We have pressure from both below and above. But to determine where we might go, we should look my pivot areas which $680 is the logical next resistance area but definitely we can neglect the fact that 10/20EMAs have been such a huge roll in this bearish move.
*Conclusion for today : Yes. I am still bearish (looking at next 2-3 weeks) and I am still holding my massive put options that I wrote last week. The reason being is that we still have many bearish reversal signals that has been confirmed at the top (check my other post regarding this). However looking at it in the short-term (like few days), I am bullish until about $680. We will test that resistance for sure.
– Head and Shoulder Yet??
-You can see on this line chart that we have clearly broken our neckline on the right shoulder.
Let’s flip it to the Candle Chart and see how it looks.
So look like this in candle chart.
-On Tuesday, we dipped to about $650 but bulls came back thus leaving long lower wick there.
But today we had the same concept however Bulls were no where to be found. Bears just crushed it today and we traded all the way down to the same price point where we touched on Tuesday which is around $650.
-BIG BIG difference with today and Tuesday is this. We closed below the neckline. Bulls did NOT come back up thus putting the price above the neckline. So now we have this almost Marubozu (no wicks) candle. Very very strong candle. Today’s move is so much stronger than Monday’s move because it came out of Bearish Flag pattern (last 4 days).
-$AAPL moved down found support at around $655 and it moved up a little bit forming a Bearish Flag and today it TANKED. This sets up for another bearish day next Monday in my opinion. Maybe three black crows is in store.
So Is the Head and Shoulder Confirmed?
I would say we are VERY VERY CLOSE but not yet…
-I know we had great bearish day today but even with the line chart confirming that the neckline is broken and possibly this is a confirmed head and shoulder. You see the thing about the stock market is that it never plays out like a text book. It makes its own rule. It will form a pattern of sort but they don’t ever play out exactly like the textbook. And that is why eventhough it appeared as the neckline has been broken, I am just not completely convinced that Head and shoulder is confirmed.
-If we see another bearish day on Monday after close, than I will say and treat this trade as though Head and shoulder has been confirmed. We are setting up for some new bearish trend.
-The candle pattern you see on there is Three Black Crows if we close with another dark candle on coming Monday. At that point, it is very highly and likely that we will bounce off of $640 to upside and test that $650 as new resistance. possibly form a Pennant or Bearish Flag and after resting $650 resistance, it will TANK. You see.. that’s a TRUE Head and Shoulder pattern.
–If this happens on Monday after close, ALL HELL BREAK LOSE. $620 next target and possibly $580 is ultimate target for me.
-My 11 days of Bearish Trade on $AAPL