Head and Shoulders Patterns: 3 Key Stock Plays

Summary

This episode details how to identify and trade head and shoulders patterns, focusing on three specific stock plays: SMCI, LITE, and KHC. A head and shoulders pattern requires an up-sloping neckline, with the 'head' being the highest point. The measured move is the distance from the head to the neckline. For SMCI, a head and shoulders pattern is identified with a down-sloping neckline when viewed from a specific angle, targeting a potential 6% move lower. For LITE, a head and shoulders pattern suggests a move down to around $460, with support near the $700 level. KHC presents an inverse head and shoulders pattern, requiring a down-sloping neckline and the lowest 'head,' with a measured move target of $28.50. The probability of a pattern playing out is influenced by the stock's position on the chart; bullish patterns have a higher likelihood at lows, while bearish patterns are more probable at highs. KHC is highlighted as a dividend-paying stock offering potential for a longer-term trade.