A Point About The Head and Shoulders Pattern

WPM chart

Chart by Steven Sarnoff h/t stockcharts.com

The Head and Shoulders is a well-known price pattern in markets.  Casual observers and amateur traders frequently misinterpret the pattern.  You can see how it gets its name on our chart of Wheaton Precious Metals above.

The point professional chartists understand is that it is not a pattern until the neckline support is broken.  Until then, it is only a potential Head and Shoulders.

Price projections are made from the top of the head to the neckline.  Some would call for WPM to fall to support in the low-$20s.  It may do that, if the neckline is broken.

Broken support often represents new resistance (supply).  Also, smart traders look to take advantage of false signals.  False signals are powerful indicators, but that is a topic for another article.

Support (demand) from the neckline and three consecutive positive red candles tell me WPM may be ready to take off higher and challenge its summer highs.

I see support at $25-$26.  Resistance is at $26.83-$28.50 and $30-$31.

Until proven otherwise by price action, and with the US dollar weakening, call me a Silver Bull.

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Be careful and measured in your trading.

Good luck and best regards,

Steve

 

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