WINDERMERE, Fla. (Stockpickr) -- There is a lot of chatter on Wall Street right now that a major chart pattern could be setting up that would be considered a classic bearish development among the technical community. That pattern is a head-and-shoulders top pattern that is potentially setting up on the S&P 500.
This pattern gets its name from the fact that it looks visually similar to that of a head with two shoulders. Many traders on Wall Street believe the pattern is a very reliable, and it often forecasts much lower prices ahead for stocks. Ignoring this pattern can be dangerous for anyone involved in the markets, simply because everyone believing it will happen can make it a self-fulfilling prophecy.
Head and shoulders is a reversal pattern that, when formed, often signals that the prevailing trend in the markets or a security is about to change. This is an example of why technical analysis is so important if you're trying to find the next big trend in the markets. With technical analysis, you can get an early heads up on market direction, and you'll be well-prepared to be on the right side of the trade.
Technical analysis is a method of evaluating securities by relying on the assumption that market data, such as charts of price and volume, can help to predict future market trends. By looking at the charts, investors can get a snapshot into the mind of the markets. Technical analysis can help give you that edge by discovering the chart patterns that have the highest probability of success.
Here's a look at
that are piquing the interest of the Stockpickr community.
If you're interested in having a chart analyzed for a future article, check the
on Mondays and watch for a specific post asking for your ideas.
Annaly Capital Management
, which owns, manages and finances a portfolio of real-estate-related investment securities.
The stock sold off sharply in early May from around $17.20 a share to $14 after the company cut its dividend by 13%. Since that selloff, the stock has rallied back up and broken above both the 50-day and 200-day moving averages. That is a pretty powerful move in a short period of time.
Now Annaly has run into some heavy prior resistance at around $18.10 a share. The last time the stock hit this level it sold off sharply, but some of that selloff was caused by the dividend cut.
If you're a bull on this name, you'll want to see the stock find support at either $17.25 or at the 50-day and 200-day moving averages, which sit at the same level of $16.81. A break below the key moving averages would defiantly have me running from Annaly. If the stock can take out the prior resistance, though, at around $18.10, then it could be setting up to challenge all-time highs around $22.
submitted entertainment technology company
, which specializes in motion picture technologies and large-format motion picture presentations.
IMAX has benefited huge off of the hot 3D trend as seen by the stock's run from $7 a share last July to over $21. During that huge run, the stock performed rather perfectly from a technical standpoint. If you take a look at the chart, you'll see shares were making higher lows and higher highs and the long-term trend line was never breached.
From a fundamental perspective, the company helped contribute a record-shattering opening weekend for the hit movie
Toy Story 3
. The IMAX release of the film contributed around 8% of the overall domestic box office and brought in $9.6 million in revenue for IMAX.
However, despite this bullish news, the chart for IMAX is flashing some major warning signs. A head-and-shoulders pattern, just like on the S&P 500, looks to have formed here, with the shoulder resistance at around $20 and the head resistance at around $21.30.
The stock has also lost the 50-day moving average of around $17.80, and it's now making lower highs since the head was formed in May. I would anticipate the 50-day moving average to now become significant resistance. Plus, if the stock trades below the uptrend line at around $16 that would be even more troubling since the stock has not breached that key level for a long time.
It's hard for me to like this chart with so many issues popping up that are not cohesive to higher prices.
Stockpickr user c submitted
, a global security company engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems and products.
Looking at the chart, you can see that Lockheed recently formed a triple top chart pattern at around $86.50 a share. This isn't the end of the world for LMT, but it does demonstrate that $86.50 is a significant resistance level.
After forming that triple top. Lockheed shares traded down through the 50-day moving average and formed a double bottom at around $75.40. The double bottom also occurred near the 200-day moving average. Now Lockheed is hitting some resistance back at the 50-day moving average. A failure to get back above that key technical level will make it very hard for this stock to make another attempt at taking out $86.50.
If you're a bull on this name, I would wait for a move above the 50-day, or I would buy it at previous support around $75.40 or at much longer-term support between $73 and $70. If you're a breakout trader, you might want to wait to buy it on a move above $86.50. A move above that level that holds could see this stock on its way toward $100 a share or even higher.
Lastly, Stockpickr user
, a telecommunications company engaged in the provision of cellular, fixed-line and broadband services in China.
Lots of very bullish technical signals are flashing on the chart of China Unicom. Shares had been in a pretty pronounced downtrend since last July, but recently the stock made a significant move and broke above the downtrend line on heavy volume. The stock has also been making higher lows since February and the chart is showing a possible new uptrend developing.
Another bullish sign for China Unicom is that now the stock is trading above both the 50-day and 200-day moving averages. This is significant because many large money managers will only buy stocks that are trading above both of these key technical levels. Even more important, shares of China Unicom are now challenging some previous resistance at around $13.20 a share. If the stock can manage to stay above that level, it could be setting up to challenge the next key resistance levels at $14.15 and then $15 a share.
It's also worth nothing that volume on the up days has been far outpacing the down days. Any time you see a positive close on China Unicom, and you see volume above the average daily pace of 2.6 million shares, I would consider that bullish.
This stock could also be a big winner off the move by Beijing to
Another bullish catalyst that could occur for China Unicom is if the company can win any of the
iPhone network provider business in the Far East. Keep this name your trading radar.
To see some more technical analysis on stocks like
( SPWRA) and
, check out the
portfolio on Stockpickr.
If you're interested in having a chart analyzed for a future article, make sure to check the
on Mondays and watch for a specific post asking for your ideas.
-- Written by Roberto Pedone in Winderemere, Fla.
Follow Stockpickr on
and become a fan on
Stockpickr is a wholly owned subsidiary of TheStreet.com.