Yesterday’s article involved a chart pattern known as an Inverse Head and Shoulders. To review, please click here. The stock had not confirmed the pattern yet, but today’s stock has.
DIRECTV provides digital television entertainment primarily in the United States and Latin America. The company engages in acquiring, promoting, selling, and distributing digital entertainment programming primarily via satellite to residential and commercial subscribers. It offers direct-to-home (DTH) digital television services, as well as multi-channel video programming distribution services under the DIRECTV and SKY brands. The company provides various channels of digital-quality video entertainment and CD-quality audio programming directly to subscribers’ homes or businesses, including approximately 170 national high-definition television channels and 4 3D channels; and video-on-demand service, which provides movie and television programs to broadband-connected subscribers. It also provides premium professional and collegiate sports programming, such as the NFL SUNDAY TICKET package that allows subscribers to view the NFL games. In addition, the company owns and operates three regional sports television networks based in Seattle, Washington; Denver, Colorado; and Pittsburgh, Pennsylvania under the ROOT SPORTS brand name.
To see a confirmed Inverse H&S pattern, please take a look at the 1-year chart of DTV (DIRECTV) below with my added notations:
DTV formed an Inverse H&S (blue) over the last (4) months. I have noted the head (H) and the shoulders (S) to make the pattern more visible. DTV’s “neckline” resistance was at the $50 level (navy). DTV confirmed the pattern by breaking up through the $50 resistance and has already started moving higher.
Keep in mind that simple is usually better. Had I never pointed out this Inverse H&S pattern, one would still think this stock is moving higher simply if it broke through the $50 resistance level. So, whether you noticed the pattern or not, the trade would still be the same: On the break above the key $50 level, which by the way, was also a 52-week high breakout.
The Tale of the Tape: DTV formed an Inverse Head & Shoulders pattern and confirmed it earlier this week. A long trade should be entered on a pullback to the $50 level with a stop placed under that level.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT