PMCS’s Potential Left Shoulder
The trickiest thing about classical chart patterns
is that they are easy to spot in hindsight, but very difficult to interpret as they
are forming. Professional traders who use these patterns, however, learn to use
classical patterns only as components within the scheme of their entire trading
strategy.
Still, there are some tricks you can use to anticipate probable outcomes of
classical chart patterns before the profit opportunity evaporates. Let’s look at
PMC Sierra
(
PMCS |
Quote |
Chart |
News |
PowerRating), for example.
PMCS bounced off its 50-day moving average in mid-September, but
has failed so far in its attempt to breakout to new highs. As you can see, a
potential right shoulder of a classic head-and-shoulders pattern is forming. The
evidence that makes this a more viable scenario is unfolding in today’s action.
PMCS opened higher, but within about half an hour of the open, began a long
steady plunge which accelerated toward the end of the day. This occurred on
heavy volume. This close at the bottom of an expanded range day on heavy volume
suggests that follow-through momentum may take hold to the downside. This
momentum may be sufficient to take PMCS below the 50-day moving average and the
50% retracement level of its early-to-late-August swing. If this happens, the
head-and-shoulders pattern may be the the initial phase of a significant top.
As in market analysis, there are a lot of “ifs.” This
is a part of life, no matter how successful a trader you are.
Have a great weekend,