We had some notable double tops occur yesterday. As defined by stockcharts.com, the Double Top Reversal is a bearish reversal pattern typically found on bar charts, line charts and candlestick charts. As its name implies, the pattern is made up of two consecutive peaks that are roughly equal, with a moderate trough in-between. Note that it says the peaks are roughly equal, they don’t need to be exact. We have a handful of these potential double top reversal patterns that we’re watching closely.
China’s main stock market index, the Hang Seng peaked around 20,300 in late October before pulling back to 19,000, only to peak again near 20,300 last week. XLK, a major technology ETF pulled back from a high around $26.50 in late October and then rallied back near this high last Monday. But XLK failed to breakout cleanly above the $26.50 high and now has a potential double top in place. The Dow Transportation average was rejected yesterday at 5,009, interestingly enough, that was also the high for the average on 10/31. Lastly, GOOG has a perfect day to day double top in place as $618.08 was the high of the day on both Monday and Tuesday and will now certainly become a key level that needs to be broken for its bullish trend to continue.
Technical signals like double tops can be very tricky because you don’t know if they will play out until they do. And by the time they do, it can be too late to cash in on the moves they provide. So we recommend using the current setting to get short using these key double tops we have highlighted as stop loss points. Meaning that if the highs on the double tops get taken out, then cover your shorts. We like this play because we feel it is a contrarian one to make right now and our stop loss is clearly defined and close by.
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