Do you see this potential Head and Shoulder pattern? (August 12, 2014)
In this video I want to look at Salesforce ( NYSE:CRM ) because it sure looks like it’s in consolidation. You can just kind of draw the box around here and maybe it’s close to a buy point. Then if you start looking a little closer you see this little high, this higher high, then a lower high, and what do we have on the bottom? It looks to me like we’ve got a neckline; it’s a head and shoulder pattern, left shoulder, head, right shoulder, and neckline.
The way you look at this pattern, and I’ll show you this in a weekly chart in a second, you take the low between the highs. In other words you get a high here, and then a higher high, and then after the lower high then you qualify this as the head; so if you didn’t have this then this wouldn’t be the head it would just be another high. So we need to have a lower high then we say that’s the head, that’s the left shoulder.
So what was the low in between the left shoulder and the head? That would be this low here, so that’s at about $50.00. Then you apply the same thing, this is the head, now the right shoulder, which is just the next high, and it better be a lower high otherwise it’s a higher high, it’s not a head and shoulder pattern; so we get a lower high, that’s the left shoulder. Okay, where’s the low in between? That would be here.
Now it’s a little bit lower, but we’re just going to use simple math here; let’s say they’re both at $50.00. So we’ve got a line connecting the two troughs here at $50.00. Now we look and say where did this thing peak at, and it’s about $66.00. So the difference between 66.00 and $50.00 is $16.00, that’s the distance here; so we take the same $16.00 and drop it off the back end here, $50.00 minus 16.00 is what? It’s $34.00. So we’ve got a price target of $34.00, if, and that’s if Salesforce ( NYSE:CRM ) breaks down below $50.00.
Right now all we have is just consolidation, but we’ve got this potential head and shoulder pattern going. Can you see what I’m talking about here? It would be more convincing as a head and shoulder pattern if it was almost a parabolic move, then you get this kind of thing and then it moves lower. But since this is just drifting sideways here we can almost look at this as just kind of the next bout of consolidation like we got here, then we got here, and we have a longer one here, but basically that’s what we can look at as this is support.
This is why it’s super important not to see a head and shoulder pattern before it’s there; this is not a head and shoulder pattern, it’s a potential head and shoulder pattern. Only if Salesforce ( NYSE:CRM ) breaks, and I mean closes before $50.00, would we look at this as a reversal pattern that’s probably going to lead to lower prices. Until and unless that happens all we see is a low, a higher low, a higher low still, a higher low, and if this holds a higher low still, so we’ve got a few different things happening here.
So what I would suggest doing is don’t expect a whole lot from Salesforce ( NYSE:CRM ) right now, but I certainly wouldn’t be shorting it. If the stock does break below 50.00 there’s going to be plenty of time to make that money, but for now just watch Salesforce ( NYSE:CRM ), see how it behaves if it falls down below 50.00.
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