Please take a look at the 1-year chart of COST (Costco Wholesale Corporation) below with my added notations:
Over the last 9 months COST has created a key level of support at $110 (blue) and that $110 level is also the “neckline” support for COST’s H&S reversal pattern. Above the neckline you will notice the H&S pattern itself (purple). Rather than just 1 peak, COST’s left shoulder formed a “complex” shoulder with more than one peak.
Remember, patterns such as an H&S need to confirm to have the meaning that they imply. Confirmation of the H&S would occur if the stock were to break below its $110 support.
The Tale of the Tape: COST seems to have formed a head & shoulders pattern. Although a long trade could be made at $110, the pattern implies that the stock might be preparing to break lower. A short trade could be entered on a solid move below the $110 “neckline” support.
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