Don't Ignore This Chart!

Measuring An Inverse Head & Shoulders Breakout

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It took two months of consolidation, but Cabot Corp (CBT) finally pulled it off.  It cleared neckline resistance in its inverse head & shoulders pattern at the 52.50 level.  One of the keys of any continuation pattern is that it requires a prior trend in place to continue.  CBT trended higher throughout July, August and September and then its SCTR ranking channeled lower as it consolidated in its recent inverse head & shoulders pattern.  The breakout occurred today on nice volume and here's how it looks visually:

Now as it's broken out above price resistance, you can see that its MACD is now surging and its SCTR rank has broken its recent down channel.  All of this sets up for higher prices, but how much higher?  Well, the beauty of patterns is that they provide measurements and targets upon breakout.  In this instance, the inverse head & shoulders measurement is based on the distance between the neckline and the bottom of the inverse head, which is 5 points.  Tack that on to the breakout of 52.50 and you get a potential measurement to a 57.50 target.  While not shown above, there's long-term price resistance at 57.50 from the 2014 price high on CBT.  That would corroborate the likelihood of an advance to that price level.  In the meantime, best entries into CBT would now be neckline support at 52.50 and the rising 20 day EMA, currently at 51.37.

Happy trading!

Tom

Tom Bowley
About the author: is the Chief Market Strategist at EarningsBeats.com, where he provides stock market education, guidance, and trading strategies using a unique combination of technical, fundamental, and historical analysis. Tom provides EarningsBeats.com members with four portfolios (Model, Aggressive, Income, and Value), all designed to beat the benchmark S&P 500, and a revolving Watch List of hundreds of companies reporting strong quarterly earnings (must beat both revenue and EPS estimates) and exhibiting technical strength as well. These companies comprise EarningsBeats' annotated Strong Earnings ChartList (SECL), from which Tom trades exclusively. Tom writes a Daily Market Report (DMR) for members to include an executive summary, market outlook, sector/industry watch, and trading ideas. Learn More
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