Question of the Week

A head and shoulders top formation chart:

I. is a bearish chart
II. indicates the reversal of a downtrend
III. is a bullish chart
IV. indicates the reversal of an uptrend

a) IV
b) II, III
c) I, II
d) I, IV


Answer:

The correct answer is d.

A head and shoulders chart, top formation, is a chart of a stock’s movement that resembles the outline of a person. As the stock first moves up, then flattens out forming the first shoulder, and then moves up again for a brief time, then down (forming the head), then flattens out to form the other shoulder the pattern is formed. It is a bearish chart, indicating the reversal of an uptrend.