KNDL – Massive Head and Shoulders

May 13, 2008: 9:01 AM CST

I’ve you’ve never seen a clear Head and Shoulders pattern, look immediately to Kendle International (KNDL).

The stock is forming a broad H&S pattern, and the Right Shoulder actually developed a mini-H&S pattern within it – it’s one of the strangest patterns I’ve seen.

I annotated this chart for visual clarity.  The black lines represent the larger structure and the red arcs represent the smaller, mini-pattern.

Price is now forcefully breaking the neckline of both the smaller and the larger patterns, and price could be headed much lower if the measuring implication holds.

Typically, we measure the distance from the Head (highest price) down to the Neckline (horizontal support line – not drawn) and then project that distance downward from the ‘break of the neck.’

In this case, the larger structure provides a distance of approximately $10 ($50 down to $40) and then if we subtract that from the neckline (around $40) then that projects price down to $30.  These are rough estimates.

The smaller structure is on its way to achieving its target:  $46 minus $40 equals $6, which is then subtracted from $40 to give us a mini-target of $34.

Let’s take the annotations off the chart and view the price structure itself:

You can also point out a double top formation at the $51 level.

A sort of broadening formation formed from February until April (which also is a type of reversal pattern).

There are a variety of other patterns you could have identified in this chart, many of which were ominous patterns indeed.

It’s always good to find ideal patterns and then annotate them and store the files for future reference, with the goal being superior pattern recognition in real time as patterns unfold.

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