Taking an Inverse Head and Shoulders for a spin – Aetna

Like many people who enjoy a bit of ‘ye olde fashioned technical analysis’ it’s a heartwarming moment when you find a head and shoulder pattern because they are really the pattern of patterns. Especially from those who are not as fond of technical analysis its the head and shoulder formation which is discussed in the most derisive tone of all. This isn’t what we are here to do today though. The following is a pattern from Aetna (AET) in the US and it’s one that I have been stalking for a while but I thought I better write it up now as we are getting close to a potential entry point.

When you draw this one on your own charts you may want to draw the neckline with a slight upward angle because the second peak is actually a little higher. If we get the type of breakout I would prefer (wide-range or gap) then this type of difference shouldn’t really matter.

The measuring rule on this pattern gives you an initial price target of more than $5 from the point of the breakout on the neckline which should deliver a pretty decent risk:reward ratio if it can make it. As always you will want to place a stop below the neckline. A good quality breakout may allow you to put your stop quite close to the line but otherwise something a little wider may be preferential (>1.5 ATR or similar).

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2 Responses to Taking an Inverse Head and Shoulders for a spin – Aetna

  1. Bill Marmion says:

    David,

    Thanks for your emails, I do follow H&S patterns as they seem to be quite reliable and have a reasonable fundamental backing.

    Check out Santos STO.AX I think it is forming an even better pattern than your example and I am interested in your comments.

    Cheers
    Bill Marmion

    • David Land says:

      Certainly looks like a solid pattern. I think it looks as though the pattern has formed rougly half way within the broad price range so a successful breakout would see a retest of those highs around $14.60.

      Thanks a lot for pointing it out and thanks as always for reading.

      David.

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