Earlier in April of this year I wrote about expecting to see beef prices lower based upon a head and shoulders topping pattern that projected to a $63 target on the cattle futures index. The chart below is what I posted then. Negative divergence between the left shoulder and the head provided the first warning of potentially lower prices even before the formation of the right shoulder.
My next chart is the same chart above but updated as of today. On December 9th the index closed just 2 cents away from my $63 target at $62.98.
The point of this post is not about beef prices as this one is already “in the books” but rather topping patterns.
I have mentioned this in the recent past that just about everywhere I look, for those investments that have not already topped out and begin braking down, I see topping patterns lurking around every corner. I wanted to show to a couple of examples, GLW and GS. The first is is Corning glass works (GLW) who’s claim to fame is the gorilla glass that just about every cell phone and tablet use. As you can see in the chart below it after peaking just above $24 (it stopped right here 3x times before in 2006, 2007 & 2008) and like beef prices in April, has formed a very textbook, symmetrical head and shoulders pattern. Adding to the bearishness is price is below the (red) 200 day moving average which is pointing down. A breakdown below the neckline has an initial target at the Nov 2012 low ~$10. Ouch
My next example is Goldman Sachs, GS. Like GLW above, the same topping pattern is in development. Price tested the 200 day moving average from below 6 weeks ago but failed to hold and is now below. While not quite as bearish as GLW, the (red) 200 dma has flattened out and is beginning to curl southward.
All patterns, until they confirm with a break of price below the necklines are, at best, warning signs for what may lay ahead. Once they do trigger and confirm, they are best used for risk management purposes. With so many stocks already broken down, watching some of the remaining strong ones begin to crumble should have everyone very cautious here. It does me.