On March 28, merely three days ago, I highlighted the inverted head and shoulders pattern observed in AAPL's stock price. In this particular case, the pattern indicated a bullish continuation. I discussed the support and resistance flip that transpired at the $156 mark. At that time, AAPL was trading just below $156.50, and I projected a bounce to $166, provided that the stock found support at $156. Currently, with AAPL at $164, I maintain my expectation of a push towards the $166-$167 range in the upcoming sessions.
AAPL's performance has contributed significantly to the upward movement of the SPX in recent days. While not the sole reason, AAPL's strong showing is indeed a critical factor, given its heavy weighting in the index. Other stocks, such as TSLA, have also performed well, further bolstering the SPX.
This week, the SPX has experienced multiple gap-ups, and as AAPL approaches the $166-$167 price target, I recommend using this opportunity to reduce risk exposure. It is plausible that we may see a short-term pullback from these levels, even for those with a bullish outlook.
EDUCATION - Head and Shoulders - Continuation
Technical analysis is a vital tool for traders looking to identify trends and make informed decisions in the financial markets. Among the many chart patterns that traders rely on, the head and shoulders pattern stands out as a widely-recognized and powerful indicator. However, the lesser-known inverted head and shoulders pattern can also serve as a continuation pattern in an uptrend rather than a reversal formation. I'd like to dive into this a little bit in case there are readers that did not understand how I came to the conclusion I came to with AAPL.
Understanding the Inverted Head and Shoulders Pattern
The traditional head and shoulders pattern is characterized by three consecutive peaks resembling a head and two shoulders. Conversely, the inverted head and shoulders pattern consists of three troughs, with the middle trough being the deepest and the other two at roughly the same level. While the conventional head and shoulders pattern typically signifies a bearish reversal, the inverted version can signal either a bullish reversal or a continuation of an existing uptrend.
Identifying the Inverted Head and Shoulders Continuation Pattern
To effectively spot an inverted head and shoulders pattern in an uptrend, traders should look for the following characteristics:
1. Preceding Uptrend: The pattern must form within an existing uptrend to qualify as a continuation pattern.
2. Distinct Troughs: The pattern should have three clear troughs, with the middle one (head) being the lowest and the other two (shoulders) being roughly equal in depth.
3. Neckline: Connecting the highs of the two shoulders forms the neckline, a resistance level that the price must break through to confirm the pattern.
4. Volume: Ideally, volume should decrease as the pattern forms and increase upon breaking the neckline, signaling the continuation of the uptrend.
Trading the Inverted Head and Shoulders Continuation Pattern
When utilizing the inverted head and shoulders continuation pattern in trading, consider the following steps:
1. Confirmation: Wait for the price to break above the neckline with an increase in volume. This confirms the pattern and suggests the continuation of the uptrend.
2. Entry: Enter a long position when the price breaks above the neckline.
3. Stop-Loss: Place a stop-loss order below the right shoulder to minimize potential losses.
4. Profit Target: Calculate the profit target by measuring the distance between the neckline and the head. Add this value to the neckline's breakout point to determine the target price.
AAPL's performance has contributed significantly to the upward movement of the SPX in recent days. While not the sole reason, AAPL's strong showing is indeed a critical factor, given its heavy weighting in the index. Other stocks, such as TSLA, have also performed well, further bolstering the SPX.
This week, the SPX has experienced multiple gap-ups, and as AAPL approaches the $166-$167 price target, I recommend using this opportunity to reduce risk exposure. It is plausible that we may see a short-term pullback from these levels, even for those with a bullish outlook.
EDUCATION - Head and Shoulders - Continuation
Technical analysis is a vital tool for traders looking to identify trends and make informed decisions in the financial markets. Among the many chart patterns that traders rely on, the head and shoulders pattern stands out as a widely-recognized and powerful indicator. However, the lesser-known inverted head and shoulders pattern can also serve as a continuation pattern in an uptrend rather than a reversal formation. I'd like to dive into this a little bit in case there are readers that did not understand how I came to the conclusion I came to with AAPL.
Understanding the Inverted Head and Shoulders Pattern
The traditional head and shoulders pattern is characterized by three consecutive peaks resembling a head and two shoulders. Conversely, the inverted head and shoulders pattern consists of three troughs, with the middle trough being the deepest and the other two at roughly the same level. While the conventional head and shoulders pattern typically signifies a bearish reversal, the inverted version can signal either a bullish reversal or a continuation of an existing uptrend.
Identifying the Inverted Head and Shoulders Continuation Pattern
To effectively spot an inverted head and shoulders pattern in an uptrend, traders should look for the following characteristics:
1. Preceding Uptrend: The pattern must form within an existing uptrend to qualify as a continuation pattern.
2. Distinct Troughs: The pattern should have three clear troughs, with the middle one (head) being the lowest and the other two (shoulders) being roughly equal in depth.
3. Neckline: Connecting the highs of the two shoulders forms the neckline, a resistance level that the price must break through to confirm the pattern.
4. Volume: Ideally, volume should decrease as the pattern forms and increase upon breaking the neckline, signaling the continuation of the uptrend.
Trading the Inverted Head and Shoulders Continuation Pattern
When utilizing the inverted head and shoulders continuation pattern in trading, consider the following steps:
1. Confirmation: Wait for the price to break above the neckline with an increase in volume. This confirms the pattern and suggests the continuation of the uptrend.
2. Entry: Enter a long position when the price breaks above the neckline.
3. Stop-Loss: Place a stop-loss order below the right shoulder to minimize potential losses.
4. Profit Target: Calculate the profit target by measuring the distance between the neckline and the head. Add this value to the neckline's breakout point to determine the target price.
Trade active:
As an investor in Apple Inc. (AAPL), I am closely monitoring the stock's performance and have recently noticed it has reached an area of interest. AAPL seems to be hitting upside resistance, and the market's reaction in the coming days will be critical to understanding its future trajectory. There are two potential scenarios at play, and I am keeping a watchful eye on both.
If AAPL's descent is characterized by 5 distinct waves and a clear downward trajectory, then it is more likely that a top has formed at this level. On the other hand, if the stock retreats in just 3 waves, then a breakout scenario may be in full force. It is entirely possible that we may see a new local high tomorrow or Thursday, which could trap late bulls and cause early bears to feel apprehensive.
In the event of a breakout, AAPL's stock price could potentially soar to $178. However, if the stock were to break down, we could be looking at a minimum price of $140.
Considering the uncertainty and potential volatility, it is crucial to approach this situation with caution. I am making sure to maintain modest positions and avoid overleveraging myself, as it is essential to mitigate risk during times like these.
If AAPL's descent is characterized by 5 distinct waves and a clear downward trajectory, then it is more likely that a top has formed at this level. On the other hand, if the stock retreats in just 3 waves, then a breakout scenario may be in full force. It is entirely possible that we may see a new local high tomorrow or Thursday, which could trap late bulls and cause early bears to feel apprehensive.
In the event of a breakout, AAPL's stock price could potentially soar to $178. However, if the stock were to break down, we could be looking at a minimum price of $140.
Considering the uncertainty and potential volatility, it is crucial to approach this situation with caution. I am making sure to maintain modest positions and avoid overleveraging myself, as it is essential to mitigate risk during times like these.
Trade closed: target reached:
The inverted head and shoulders played out already and is starting a retreat. We're making tests of the yearly highs, but the trendline above is going to be rough to get through. At this juncture it's important to determine where the upside is or how much upside is left. Be cautious and move up stop losses to prevent larger drawdowns in case we do see a rug pull in the coming weeks.
Comment:
AAPL continues to prop up SPX. The AI revolution is real. This is bubble style momentum. Look to be de-risking on equity if you have it. Wait for a meaningful pullback to reload. NTA.
