Opinion on  Frontline Ltd (FRO)     Sector: Transportation  >  Industry: Water Transportation
Head and Shoulders

I bought FRO at $33.60 on 12/0706 and sold at $67 on 07/01/08. I missed the high of $71.76, but I’ll take a 97% run. Since I sold, I have been watching this stock carefully. I am currently bearish on FRO because I see a typical “Head and Shoulders” pattern in the chart from June to July. The beginning of this pattern was achieved on 06/09/08 at $66.31. Sellers came in at this high (left shoulder), pushed the stock down and created the beginning of the neckline on 06/11/08 at $61.24. Buyers then pushed the stock back up to create a new high (head) of $71.76 on 06/23/08. Soon after, the sellers came back and pushed the stock back down to the neckline at $60.66 on 07/07/08. Buyers came back to push the stock to $65.26 on 07/11/08 to create the right shoulder. This high did not take out the previous high and has been on a downward trend since.

 

More about Head and Shoulders…

 

The head and shoulders pattern is generally regarded as a reversal pattern and it is most often seen in uptrends. It is also most reliable when found in an uptrend as well. Eventually, the market begins to slow down and the forces of supply and demand are generally considered in balance.  Sellers come in at the highs (left shoulder) and the downside is probed (beginning neckline.)  Buyers soon return to the market and ultimately push through to new highs (head.) However, the new highs are quickly turned back and the downside is tested again (continuing neckline.)  Tentative buying re-emerges and the market rallies once more, but fails to take out the previous high. (This last top is considered the right shoulder.)  Buying dries up and the market tests the downside yet again. Your trendline for this pattern should be drawn from the beginning neckline to the continuing neckline.  (Volume has a greater importance in the head and shoulders pattern in comparison to other patterns.  Volume generally follows the price higher on the left shoulder. However, the head is formed on diminished volume indicating the buyers aren't as aggressive as they once were.  And on the last rallying attempt-the left shoulder-volume is even lighter than on the head, signaling that the buyers may have exhausted themselves.)  New selling comes in and previous buyers get out.  The pattern is complete when the market breaks the neckline.  http://www.chartpatterns.com/headandshoulders.htm