Qualcomm
Inc (NASDAQ: QCOM)
Market Call™ for May 4, 2000
Contributed by Mark Seleznov, TrendTrader.com.
The purpose of this Market Call section is to
educate readers in technical analysis patterns and indicators. As with all investment
information, you need to research information and consult your financial advisor before
initiating any strategies that are contained in Market Call.
Also, you must realize that as with all trading strategies,
opinions can change quickly depending on market conditions and developments.
This column tries to present historical examples, potential set
ups, and examples of entry and exit strategies.
The Head and Shoulders Pattern
The head and shoulders pattern is generally regarded as a reversal pattern
and it is most often seen in uptrends. It is also most reliable when found
in an uptrend as well. Eventually, the market begins to slow down and the
forces of supply and demand are generally considered in balance.
Sellers
come in at the highs (left shoulder) and the downside is probed (beginning
neckline.) Buyers soon return to the market and ultimately push through to
new highs (head.) However, the new highs are quickly turned back and the
downside is tested again (continuing neckline.) Tentative buying re-emerges
and the market rallies once more, but fails to take out the previous high.
(This last top is considered the right shoulder.) Buying dries up and the
market tests the downside yet again.
Your trendline for this pattern should
be drawn from the beginning neckline to the continuing neckline. (Volume has
a greater importance in the head and shoulders pattern in comparison to
other patterns.
Volume generally follows the price higher on the left
shoulder. However, the head is formed on diminished volume indicating the
buyers aren't as aggressive as they once were. And on the last rallying
attempt-the left shoulder-volume is even lighter than on the head, signaling
that the buyers may have exhausted themselves.) New selling comes in and
previous buyers get out.
The pattern is complete when the market breaks the
neckline. (Volume should increase on the breakout.)
This pattern can be used on charts of various time frames from minutes to
daily or even weekly charts.
Our charts are 60 minute charts.
Let’s look at Qualcomm Inc. (NASDAQ: QCOM).
Head and Shoulders Pattern:
A major reversal pattern with four distinct features:
Left Shoulder:
The trading of May 1, 2000 is our left shoulder.
Head:
A high volume rally with the top reaching a higher level than the left
shoulder, followed by a another reaction on less volume that takes the price
to a level near the bottom of the previous reaction. This time frame is May
2, 2000 price action.
Right Shoulder:
A third rally on noticeably less volume that fails to reach the top of the
head. This is the action of today, May 3, 2000.
Neckline:
A decline in prices from the top of the right shoulder which falls below the
line formed when connecting the bottoms of the left shoulder. This is drawn
by connecting the bottom around 108 of the left should on May 1 and the low
of today at 108.
If QCOM breaks below 108 anytime tomorrow, this would be a negative pattern.
Chart courtesy of
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Call Information
Mark A. Seleznov is a General
Securities Principal and Managing Partner of Trend Trader, LLC, a NASD, SIPC broker/dealer firm located in
Scottsdale, Arizona. A professional trader for over 25 years, Mark was a Market Maker on
the Philadelphia Stock Exchange, a Retail Registered Representative, and futures trader.
Mark is an author and recognized expert in equity Day Trading. He conducts seminars in
Equity Day Trading and offers his firm traders training and support. If his firm holds any
positions in the public companies he writes about, it will be noted at the bottom of his
article.
Market Calls is a daily syndicated column on trading by Mark A. Seleznov, Managing Partner
of Trend Trader,
LLC. For information on obtaining Market Calls for your web site,
newspapers, or publication, contact Trend Trader, LLC at 602-948-1146
Disclaimer: Trading in securities may not be suitable for
all individuals. Consult your broker or other professional to determine your suitability.
This is not an offer to buy or sell securities. The advice given above is of a general
nature and should not be taken as a recommendation to buy or sell the referenced security.
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Last modified: March 17, 2001
Published By Tulips and Bears
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