Monsanto Company (NYSE: MON)

A Head and Shoulders (H&S) pattern is a reversal pattern that forms after an uptrend. A textbook H&S pattern starts to form when a stock rallies to a point and then pulls back to a particular level (left shoulder). Next, the stock will rally again, but this time to a higher peak (head) than the previous one. After forming the head, the stock will pull back to the same support that the first shoulder did. Finally, the stock rallies a 3rd time, but not as high as the head (right shoulder). The level that has been created by all 3 of the pullbacks is simply a support level referred to as the “neckline”. The formation of an H&S pattern warns of a potential reversal of the uptrend into a possible downtrend.

Monsanto Company provides agricultural products for farmers. It operates in two segments, Seeds and Genomics, and Agricultural Productivity. The Seeds and Genomics segment produces row crop seeds, including corn, soybean, cotton, and canola seeds principally under the DEKALB, Channel, Asgrow, and Deltapine brands; vegetable seeds consisting of tomato, pepper, melon, cucumber, pumpkin, squash, beans, broccoli, onions, and lettuce seeds under the Seminis and De Ruiter brands. This segment also develops biotechnology traits that assist farmers in controlling insects and weeds under the SmartStax, YieldGard, YieldGard VT Triple, VT Triple PRO, and VT Double PRO, as well as Bollgard and Bollgard II, Roundup Ready and Roundup Ready 2, and Genuity brands. The Agricultural Productivity segment manufactures herbicides for agricultural, industrial, ornamental, turf, and residential lawn and garden applications for weed control, as well as for control of preemergent annual grass and small seeded broadleaf weeds in corn and other crops under the Roundup and Harness brands.

To review the H&S pattern that has formed on Monsanto's stock, please take a look at the 1-year chart of MON (Monsanto Company) below with my added notations:

MON had been on a 5-month rally since its April-May correction. However, over the last (3) months, MON has created a very important level at $85 (navy), which would also be the “neckline” support for the H&S pattern. Above the neckline you will notice the H&S pattern itself (red). Confirmation of the H&S occurred yesterday when MON broke its $85 “neckline”. The stock should be moving lower from here.