NEU Head & Shoulders

NEU

My buddy A.C. came across this interesting play today, NEU. It is a upside down "Head & Shoulders" pattern that looks like it may be close to breaking out for a tremendous $23 upside! If you are not familiar with what a H&S pattern looks like, I'll try to describe it for you.

A Upside Down Head & Shoulders pattern consists of three (3) points, two lower ones sandwiching an even lower one in the middle. The neckline begins where the first downturn to the first low point begins. In the case of NEU, on 5/9/06. The first shoulder occurs on 5/22, followed by the head on 6/14 then the second shoulder on 7/14. The theory is, if the stock retraces back to the neckline and breaks it, in this case at $62.35 (the high of the day on 5/9), then the stock will probably ("probably" is ALWAYS the operative term when dealing with trading, NOTHING is certain)move the same height as the distance between the neckline ($62.35) and the top (or bottom as it is here) of the head ($37.65)or $23.70.

Using the same time frame of about a 4 month pattern formation gives me a December/January time frame for my option when it is ready to go.

Patience is important because the pattern has not signaled an entry yet, so what am I waiting for? Well, to start I need the stock to close above the neckline. After that occurs, typically, the stock will run away from the neckline then retest it. That is what I am waiting for, the stock to move past $62.35, then come back down to it without breaking through, then once my MACD and STO show strength, and the stock is ready to continue its Bullish move, then I will buy my Call for a 4 month pattern run.

Keep an eye on this one!