has been very apparent as this market corrects. Not only did it mark
the top in the indexes, it recently nailed the top in Netflix, one of
the hottest of the glamour stocks. NFLX has a slopping SHS pattern,
which I think is the most bearish of the type. Notice how much lower
the right shoulder is than the left. Also note the distribution
days--selling on high volume--that marked the end of this once
high-flyer. High-volume distribution days indicate that institutions
are selling, which unlike us individual traders takes several days and
leaves very distinctive volume/distribution patterns. Once the
institutions start selling a high-flyer like NFLX it's over, so you
might as well short it on the bounces. I'm guessing that NFLX
eventually drops to around 100.
AXP is one potential SHS top I'm stalking. Again, notice that the
right shoulder is lower than the left. A breach of the 46-47 area will
complete the pattern. Ordinarily, in these patterns you don't see a
spike down through the neckline like the one in August. I'm willing to
assume this was all part of the European mess and that the next breach
of the neckline will actually complete the pattern.
CALM is another one I'm waiting on. CALM's pattern is more the classic
style with both shoulders roughly equal. Notice the high volume
selling. If CALM breaks the 31 level, it should drop to around 28
quickly.
The SHS pattern has been part of market formations for decades, if not
centuries. As a 'big-picture" pattern, the SHS is best used in
combination with more precise indicators for entry, and general
money-management rules, but it definitely pays to exploit them.
I'm noticing more now in high flying stocks--like NFLX--that led the
last rally leg.
A quick flip through my database reveals several stocks that are in
various stages of forming the SHS pattern: UA, QCOR,WYNN, IBM, ANF,
CHS,EL, NCD, BIDU. KO on the other hand, looks like it is forming a
1,2,3 Double Top.
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