To gvander and Zeev,
A straight line, a hump, and a straight line do not a head-and-shoulders make.
(First line: 12 days from 11/9 – 11/24)
(hump: 8 days from 11/25 – 12/7)
(Second line: 9 days from 12/8 – 12/18)
Perhaps it is because the H & S pattern is one of the best known chart formations that Jack D. Schwager, author of Schwager on Futures, Technical Analysis, says “one of the most common mistakes made by novice chartists is the premature anticipation of the head-and-shoulders formation.” Zeev is right in pointing out that the neckline has to be penetrated before the H & S pattern can be considered complete. And he is also right in calling the such a pattern an “ominous” formation. But I see nothing ominous in the VLNC chart.
A head-and-shoulders is “only formed after a major price move has occurred. Patterns that bear the shape of a head-and-shoulders formation, but lack this requirement, can be misleading.” (Schwager) A H & S is a grand pattern, indicating a major top and a reversal of the major trend.
A stock has to be moving up over months if not years before a true H & S can come into play. VLNC has spent the past three years moving sideways between 3 and 10. The most salient pattern in the VLNC chart is its “W” bottoming dip (8/13 – 9/17) prior to forming a double handled cup (9/18 – 10/22), setting the stage for its 3-step blast off that broke through the sideways trading range to set a new 4 and a half year high on 11/27 at 11.3125.
The first “step-range” occurred 10/26 – 11/5, then a step-up to the second “step” that lasted 11/9 – 11/24. The third and top step ranged from 11/25 – 12/7. This is all very, very bullish, and (as of yet) shows not a trace of ominousness. The fact that it moved from 3.125 to 11.3125 (more than tripling) in a mere 65 trading days begs for a pause, a pullback or it would not be healthy. Either that or it would be an internet stock!
It is not surprising in light of the lack of contract announcements or analyst recommendations or whatever people may have hoped for by now, that the price has pulled off the hump's high and is currently doing very little. But to suggest the chart is looking ominous is just plain wrong.
I will admit that different folks are entitled to different opinions, as charting is an interpretive art and not a science. But if you see a VLNC H & S, well, all I've got to say is I'd hate to send you guys to town to pick out a bride for me. :)
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