One of the most bullish stock formations is the
inverted head and shoulder formation. It is a reversal pattern, which begins
during a downtrend. This isn’t strictly true in the case of Telus, since the
stock began to recover from a deep crash six years ago. Furthermore, volume
did not move much as the right shoulder developed. Let those cautions guide
your investment decision.
That said, this chart shows all the characteristics of
this powerful formation, and the recent breakout represents an important
mover upward from a slump the telecommunications stock has been in for a
couple of years. Also, as an illustration the pattern is picture perfect.
As you can see, in this pattern sellers drove this
stock down on high volume late last year, with confidence beginning to return
at the beginning of this year. By March, investors began taking profits, thereby
creating the beginnings of a right shoulder. The breakout, in my opinion, has
just begun and could well sustain itself for a while.
According to some technicians, in some of these moves
you can calculate the size of the upward move by measuring the distance from
the neckline to the head. That, according to those folks, is the size of the
prize you might expect. Personally, I see too much risk in that strategy. I
intend to sell sooner.
In no way does this article represent a buy-or-sell
recommendation, of course. Rather, what I recommend you do is look for this
bullish pattern in your own portfolio.
Also, a word of caution: The mirror image of this image
is the head and shoulders formation. Look for that, too. Unlike the bullish
inverted H&S, the regular head and shoulder configuration is a bearish
formation. If you see it, beware.
