The sole downside setup we're looking at today is communications giant
(VZ - Get Report)
. Even though Verizon isn't a tech stock in the traditional sense, its exposure to mobile phone sales and its scale as an internet service provider means that its price action correlates highly with the rest of the tech sector. But more recently, that correlation has decoupled thanks to a topping pattern in shares.
Verizon is forming a head and shoulders top right now, a bearish pattern that indicates exhaustion among buyers. The head and shoulders is formed by two swing highs that top out around the same level (the shoulders), separated by a bigger peak called the head. A breakdown below the pattern's support level, called the neckline, triggers the sell signal for this stock. For Verizon, the sell signal comes in right at $41.50...
The head and shoulders may be a popular pattern, but it's also a potent one: 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 keep an eye on how this stock trades for the next week.
To see this week's trades in action, check out the
Technical Setups for the Week portfolio
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