A favorite and very simple pattern to grasp is the Head and Shoulder formation.
The KLAC daily chart shows some broad peaks and floors since last December with a high at or near 55 and a low around 42. The pattern I’m focusing on gives us a 44.11 low and 54.12 high. The shoulder line is sloping downward and the neck line has been sliced as support broke today bringing the stops in play and the momentum short sellers get active. Also, notice the RSI is firmly positioned under the 50 mark which is a technical shift from bullish to bearish. Add the $SPX weakness, headline events and we can see why the stock is in a potential free fall.
In this scenario, the neckline has been breached today which can open the door to a price move to 42 and then 40. Traditional technical analysis tells us that a 3 % move from a support level (neck line ~ 44.00) solidifies the transition from a support break to resistance, lowering the bar for additional selling.
In the event of a rally from these levels ( KlAC currently trading at 43.85), a close above 48 will put the bulls back in control.
KLAC has bounced off the lows last week with the markets but has hit the resistance level (neck line break) and stalled. A test of 43.15 then 42 ( blue dot) would be exactly what we would want if we were short off the H & S pattern break.
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