ABSTRACT

A formation of the Head-and-Shoulders type may develop at an important Reversal of Trend from down to up. In that case, it is called a Head-and-Shoulders Bottom, and its price pattern (as compared with a Top) is turned upside down, that is, it stands on its head. EN: The present Editor has always been impatient with the undescriptive nature of the term “Head-and-Shoulders Bottom,” and so he has renamed it the “Kilroy Bottom.” See Figure 7.4 . The volume pattern is somewhat the same (not turned upside down) as at a Top but with some important changes in the latter half of the formation, which we shall discuss in detail. We can lay down specifications for it in much the same words as we used for the Head-and-Shoulders Top. Here they are, with the portions that differ in principle from the Top printed in italics (see Figures 7.1 through 7.25):

A decline, climaxing a more or less extensive downtrend, on which trading volume increases notably, followed by a Minor Recovery, on which volume runs less than it did during the days of final decline and at the Bottom. This is the “left shoulder.” EN9: Or left hand.

Another decline that carries prices below the Bottom of the left shoulder, on which activity shows some increase (as compared with the preceding recovery) but usually does not equal the rate attained on the left-shoulder decline, followed by another recovery that carries above the Bottom level of the left shoulder and on which activity may pick up, or at any rate exceed that on the recovery from the left shoulder. This is the “head.” EN9: Or nose.

A third decline on decidedly less volume than accompanied the making of either the left shoulder or head, which fails to reach the low level of the head before another rally starts. This is the “right shoulder.” EN9: Or right hand.

Finally, an advance on which activity increases notably, which pushes up through the neckline (EN9: Or fenceline) and closes above by an amount approximately equivalent to 3% of the stock's market price, with a conspicuous burst of activity attending this penetration. This is the “confirmation” or “breakout.”