Head and Shoulders Reversal Trade Planning for Celgene CELG

Mar 18, 2014: 11:29 AM CST

Despite a strong uptrend, Celgene (CELG) shares face a critical challenge at a make-or-break(down) support level from a potential Head and Shoulders Reversal pattern.

Let’s take a look at the pattern, note the “neckline” support line, and plan contingencies for the short-term future.

Here’s the Daily Chart with indicators and H&S Pattern Illustrated:

Celgene CELG Head and Shoulders Reversal Chart Pattern Breakdown Swing Trade Planning

Celgene (CELG) shares face a make-or-break support (or breakdown) challenge into the current $147 level.  Not only is it a key price level, it’s also the rising 200 day Simple Moving Average (SMA).

We’re not predicting a breakdown, but simply noting that a price breakdown here would likely result in a wave of selling – liquidation from the bulls/buyers along with fresh short-selling from the bears – which could cascade price lower toward known support targets.

The Head and Shoulders Pattern is a type of lengthy, distribution top pattern popularized in the trading community, and we can see a clean pattern developing on the Daily Chart above (complete with divergences and distribution volume).

The “Price Pattern Projection” Target would be near $125 per share – traditionally, we take the height of the Neck (“head” minus “neckline”) and then subtract that from the Neckline or horizontal support trendline.

Keep in mind that the pattern DOES NOT trigger if price (buyers) instead stabilizes and rallies up off the critical support level.

As traders, we’re not predicting the future but assessing probabilities, patterns, and trying to figure out what will make buyers buy or add to existing positions (example – a test of support) or else liquidate (take stop-losses or close positions with a profit).  Our trades are often based on a simple bet whether a support level will hold or fail.

In the event price does break (and remain) under the horizontal support price level and the 200 day SMA, let’s turn to a simple Fibonacci Retracement chart for additional potential downside targets:

Celgene CELG Daily Chart Reversal Fibonacci Retracement Grid Price Target Planning

While the H&S Pattern Projection target is near $125 per share, the 38.2% Fibonacci Retracement level as drawn intersects the $130 per share level which happens to be another “Price Polarity” or importnat level that has served both as support and resistance.

Even without the H&S Pattern, we can envision price moving down through “Open Air” on a trigger-break under the current support near $145.  An “Open Air” downside swing simply targets $130 – nothing fancy about that.

Let’s not get too far ahead of ourselves.   For the meantime, closely monitor shares into the $145 “Make or Break” inflection (trade trigger/position management) level and assess price movement down away from $145 toward $130 or $125 on a downside break… or else up off of (and away from) $147/$150 for a support-bounce and pro-trend continuation play.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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