(GOOG - Get Report)
is showing traders the exact opposite pattern right now. The inverse head and shoulders is exactly what it sounds like: it's a head and shoulders top that's been flipped upside down. Naturally, then, it's an upside setup.
For Google, the pattern is smaller than the one in Merck -- that means that the trading timeframe is a bit shorter too. More importantly, GOOG broke out above its neckline on Monday, signaling a buy in this stock just as big indexes are going to test their 52-week highs this winter; Google's on track to do the same. Shares haven't made much of a move off of the neckline yet, a fact that makes to day a good buying opportunity. If you decide to jump into Google here, I'd recommend a protective stop right at the 200-day moving average.
Lest you think that the head and shoulders is too well known to be worth trading, the research suggests otherwise: a recent academic study conducted by the
Federal Reserve Board of New York
found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant."
That's a good reason to pay attention to the setups in GOOG and MRK right now.
To see this week's trades in action, check out this week's
Must-See Charts portfolio
Follow Stockpickr on
and become a fan on