Bulkowski's Yahoo 2 Trading Quiz

The cup with handle seems to be missing the handle (or it's not very big) so you can call it a rounding turn. The head-and-shoulders top has broken out downward. If you owned this stock, should you sell? If not, should your short it?

Answer 1 (buy?): The head-and-shoulders top shows a sell signal. If you own shares, sell them. Consider shorting but look for underlying support first. See the next slide. Support will help determine how far price may tumble.

Shown in blue are where I think the stock will find support. These areas match price congestion in Sept '04 and June '04. If so, the decline looks large enough to suggest a short sale might be profitable. The top blue line means an 8% decline and the bottom one is 14% down from the close.

Answer 2: See the above paragraph. Price may reverse somewhere within those blue lines...or it may continue down.

Answer 3: Place a stop above the right shoulder. That would mean an 8% loss. Volatility is $1.42, so a stop no closer than 38.40 would help prevent you from being stopped out on volatility. The right shoulder is at 38.90, so it's a perfect spot for a stop.

Price pulled back and almost hit the top point above the right shoulder but then declined. It found support at the lower blue support line in February '05 through March before rebounding.

I drew green circles around the points where price found support or resistance at the blue lines. I'm surprised the top line found such support.