Review of Head & shoulder pattern

HMIN demonstrated its head on shoulder patterns not long ago, which let me associate the cast published by IBD today. And I think it is quite a useful pattern that we wanna remember . So share it here for study purpose. Copyright belongs to IBD.

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From November through early March, airlines were one of the best-performing industry groups. It was also during that time, that Continental Airlines, (CAL) an industry leader, was forming a topping pattern.

Like many other airline stocks, Continental shares rallied for much of the autumn. The stock started stalling in December, when shares dipped near their 10-week moving average (point 1). All that seemed normal, especially when Continental jumped from the 10-week line to new highs. But on the week of Jan. 19, the stock reversed lower on heavy volume (point 2). The next week, it sold off further on even heavier trading, dropping below the 10-week average. Shares tried rallying back, but met against renewed selling. That rally attempt turned out to be the second shoulder in a head-and-shoulders pattern. That formation is one of the few shown by research to be a bearish pattern. A sell signal occurs when the stock pierces a trend line drawn across the lows (point 3), known to chart readers as the “neckline.” Continental has continued weakening. Its Accumulation/Distribution Rating is down to a D-, and its Relative Strength line is also trending down (point 4).