The Anatomy of a Head-and-Shoulders Bottom

Despite the rally in the broader market this year, many stocks are still consolidating after declines in the last half of 2011. Several have formed inverse head-and-shoulders patterns and are currently testing neckline resistance. There are two types of head-and-shoulders patterns -- continuation and reversal -- and I have stocks that illustrate each of those formations.

The weekly chart of Thomson Reuters (TRI), a business information services company, shows an inverse head-and-shoulders reversal bottom over the past eight months. After breaking an uptrend line in place for most of the rally off the 2009 low, the stock went into a waterfall decline in August before finding support above the $25 level. The lower highs continued forming the neckline, but the base held, and the lows formed the head-and-shoulders of the inverse pattern....316 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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