Head And Shoulders, Anyone? No I Mean The Pattern 🙏💰
The head and shoulders pattern is a well known formation that can tell you when stocks have peaked when it may be time to sell short. Learning how to spot potential shorts is an excellent tool for investors, especially in times where long setups are far and few between.
What Is The Head And Shoulders Pattern?
Just like with buying long, there are basic chart patterns we want to see that signal a potential price move. These chart patterns are key in deciding when to sell stocks short or identifying major tops.
When it comes to selling stocks short, the head and shoulders is one of those VIPs, or very important patterns, that you must learn to spot. Aside from learning to recognize this pattern, which will come with time and practice, it's important to know the fundamental parts of a head and shoulders.
It consists of three tops, with the middle one (the head) reaching higher than the other two (the shoulders). The left shoulder, head and right shoulder should all occur in a five- to seven-month period. Also look for the right shoulder to be lower relative to the left shoulder and it should undercut the left shoulder.
A solid head and shoulders should be preceded by a major rally to new highs, and followed by a rapid drop below the 10-week average. This prior uptrend should be big, as in a rise of at least 300% to new highs. Ideally, the stock will have broken out from a number of bases prior to the head and shoulders developing. The more prior bases, the better.
Once the right shoulder has formed, start looking for an entry point on the stock. This is primarily a drop below the 10-week line, or sometimes the 40-week line, in heavy volume. Weekly charts on both MarketSmith and Investors.com identify these lines.
Investors can use the 7% to 8% sell rule as a way to cut losses if the short trade moves against you.
Time To Sell Stocks Short?
If a stock is falling from its highs, look for a swell in volume on the downside. This indicates institutional selling and can be a strong indicator for further weakness in the stock.
If you're seeing flawed cup patterns forming, heavy distribution among the major indexes and a current market outlook flipping rapidly from "confirmed uptrend" to "uptrend under pressure," be warned that a move lower may be on the horizon.
These are among the ideal conditions in which to sell stocks short.
Dexcom Test Cases Analysis
Last year, Dexcom (DXCM) formed a head with shoulders that preceded a drop of nearly 60% from the top of the head to the bottom in May.
From the week of Sept. 3, 2021, through the week of Oct. 8, shares formed the left shoulder. Then, the stock rallied off the 10-week line to form the head. But during the week of Dec. 3, shares sliced through the 10-week line in heavier-than-normal volume. The right shoulder, which was slightly higher than the left, formed from the week of Dec. 3 through the week of Dec. 31.
The right shoulder also formed entirely below the 10-week line. Right after the right shoulder formed, shares proceeded lower once again, undercutting the 40-week line (not shown on the chart). This provided investors with a point of entry to sell the stock short.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
$DexCom(DXCM)$
As I indicated in my earlier post, Dexcom was a strong buy. The Dexcom stock price has risen from $73.46 on 10 June 2022 to $83.38 at market close on 29 August – a 13.5% increase.
So, should investors expect the price to enjoy a post-split surge over the coming weeks, or are there other factors that need to be considered? In this Dexcom stock split analysis, we take a look at the company’s performance, examine recent results and see what analysts expect for the Dexcom stock price.
$DexCom(DXCM)$
Is It Time To Buy DXCM Shares?
The drop in Dexcom’s market cap is more to do with competitive pressure. Abbott’s Freestyle Libre 3 continuous glucose monitors was approved by the FDA in late May. The device competes with Dexcom’s G7 in Europe, but the G7 has yet to gain US approval.
One element that was not at play in Dexcom’s falling valuation was the bid it was said to be considering for the insulin pump maker Insulet in May. The company scotched these rumours after a week or so of fevered speculation, but its shares barely shifted during this period.
While the factors affecting individual companies are interesting, they are mostly outweighed by the macro issues hitting the sector. Makers of devices that patients pay for themselves are having a hard time and will likely continue to suffer in the months to come.
$DexCom(DXCM)$
DexCom's Q2 results came in a little short of Wall Street expectations.
The company also narrowed its full-year revenue guidance, lowering the top end of the range.
DexCom's U.S. launch of its G7 continuous glucose monitor will be delayed as well.
Keep the faith - sell if you detect it on a downward spiral