I posted this chart here in mid-January, after Morgan had rallied a whopping 212% off its October low. Don't let anyone tell you that Bear Market rallies aren't worth playing. Whew! In this chart, however, Goldman ran out of steam and finally completed a H&S Top after the three month rally. I posted it, at the failed back test of the neckline.
The broken pattern put a downside target of something like 14.77-14.90 IN PLAY (I can't measure these Scottrade charts as accurately as I can my Metastock charts).
The downside target MADE with no problem. Goldman bottomed at 13.10 and staged ANOTHER outstanding rally to 22.44, thus far, for a gain of 71% off that 13.10 low. These rallies have been in a terrible market environment, and on HORRIBLE December earnings out of Morgan, which is testimony to "Play what you SEE, not what you THINK," and it's also an example why I ignore the fundamentals and pay attention only to the REACTION to the fundamentals.
At the recent high, Morgan was up a sizzling 264% off its October low, despite December earnings being an incredible 600% worse than the estimate. Positioning short in Morgan based on the horrible fundamentals certainly "seemed" to make a lot of sense on the face of it, but the market doesn't always makes sense, and we would have been led woefully astray on a wicked short squeeze.
As we can see in the next chart, after the 71% rally off the 13.10 low, the Bears once again are presented a chance to knock Goldman down on the chart technicals and if past is prologue (H&S Top in the Hourly Chart after a big rally), the Bears will capitalize on this opportunity.
Compare this "possible" H&S Top with the one that formed in mid-January (Chart #1). This one is broader in width, and it contains two other patterns "nested" within the larger H&S Top formation. The Head is a Descending Triangle; the Right Shoulder is a Symmetrical Triangle. As I've said and demonstrated a number of times before, "nested" patterns tend to pack some punch when they break out or break down (remember the TRIPLE H&S top in Goldman that I posted in January?).
Never any guarantees, of course, and I'm also not assuming that this pattern will break to the downside at all. "Possible" H&S Tops can and do break out to the UPSIDE, so we need to be aware of that.
The volume pattern as it stands favors a bearish resolution. Classically, in a H&S Top, volume should be heaviest in the Left Shoulder, next heaviest in the Head, then lowest in the Right Shoulder, indicating a diminution of buying interest. If the neckline breaks to the downside, it should be on increasing volume. I'm not rigid about conforming to classic standards, though. I've seen plenty of H&S patterns that don't conform at all to classic standards and they work out just fine, particularly on intraday charts. It's nice when they do conform, however.
This daily chart gives us the big picture of what has gone on with Morgan since the Bullish Island Reversal low on October 10 and the Bullish non-confirmation of the low in the general market, on November 21. Notice that the Bullish Falling Wedge (pattern in black) target 0f 24.52 that we've had outstanding since the early January breakout came within eight cents of getting MADE at the February 5 high of 24.44. That's mighty close, given that targets are just "what we've aiming for" based on pattern measurements. We can't expect exactitude.
The Bullish Inverse H&S (pattern in blue) target of 25.34 still is IN PLAY. Just as the intervening H&S Top (little red circles) temporarily trumped the 24.52 upside target, we might get something similar here. The downside target got MADE, then the 24.52 target got MADE (within eight cents). Charts are dynamic and we have to follow the play as it unfolds as best we can, and that isn't always easy.
The neckline for the "possible" H&S Top in the Hourly Chart (Chart #3) comes in on Tuesday, February 17, at 21.33 so a print of 21.32 would be a technical violation of the neckline. It's probably a little different on the Hourly Chart, but that's roughly the area of a possible breakdown. The slope of the neckline is $0.205 so we add that amount each day. The neckline will be at 21.525 on February 18; 21.73 on February 19, etc.
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