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BIRKELBACH
INVESTMENT SECURITIES, INC.
MEMBER FINRA / S.I.P.C. |
PRESS RELEASE
BACKGROUND:
BULL MARKET POTENTIAL OF A GIANT HEAD AND SHOULDERS
BOTTOM FORMATION
(Updated June 2005)
From Carl M. Birkelbach,
Chairman and Chief Executive Officer,
Birkelbach Management Corp., Chicago
The stock market appears to be at a critical stage and could be on the verge
of a breakout from a very bullish giant head and shoulders bottom formation
that has huge upside potential.
In the technical approach to market analysis, the head and shoulders formation
of stock price movements is the oldest, best known, and possibly the most reliable
formation that signals a change of trend.
Technical analysts see a buy signal when a head and shoulders bottom is formed
and prices break above the neckline, which connects the top of the left shoulder
and the top of the right shoulder. After prices break above the neckline, there
is usually a quick retracement back toward the neckline, and then continuation
of the upward trend above the neckline to much higher prices.
The three major indexes – Dow Jones Industrials, S&P 500 and NASDAQ
Composite – are each at about the same stage around the neckline of a
giant head and shoulders formation. In the accompanying price history chart
for the Dow:
· The left shoulder low of 8,300 was formed in response to the 9/11/01
attack and can be looked upon as an aberration. The left shoulder that we believe
should be used was formed in the year 2000 at 9,500.
· The market then advanced to a left shoulder high of 10,753, forming
the left point of the neckline (top solid line).
· A deep decline then followed, forming the head, at 7,197 in October
2002, the end of the 2000 – 2002 Bear Market.
· The high of the subsequent advance in 2003 formed the right point of
the neckline at about the same level as the left shoulder high of 10,753.
· The right shoulder low was reached in 2004 at 9,600.
· The advance in late 2004 to a little above the neckline at 10,753 virtually
completed the formation. As is usual at the end of a head and shoulders bottom
formation, this advance immediately met resistance after breaking the neckline
of 10,753 and declined in January 2005. Late in February and early March 2005,
there was a quick retracement above the neckline, however, indicating the completion
of a text book head and shoulder bottom formation and hopefully a big upmove
to follow.
· The next step is to calculate how far the market should advance. Technical
analysts calculate this projected advance by measuring the distance from the
neckline (10,753) to the bottom of the head – 7,197 points on the Dow
– and adding this distance 3,556 to the neckline at 10,753. (10,753 –
7,197 = 3556; 10,753 + 3,556 = 14,309). This gives the new projected goal for
the next market advance at 14,309. The accompanying charts also show these calculations
for the S&P 500 and the NASDAQ Composite Indexes.
· The market is currently at a critical stage as the neckline has a stranglehold
on the markets. In order for this stranglehold to be broken, the markets must
hold above the March 2005 high (Dow – 10,984, Nasdaq – 2,191 and
S&P 500 – 1,229).
Small Head and Shoulders Formation Predicted 2003 Upsurge
As a recent example of how this pattern works, the accompanying chart
also shows a smaller head and shoulders bottom formation, in 2003, that predicted
the market’s upsurge in 2004 to 10,800.
In the smaller head and shoulders formation (of 2002 to 2003) the distance from
the neckline 9,000 to the head bottom 7,197 was 1,803 points and indicated a
price target of 10,800, which the Dow has just achieved (9,000 – 7,197
= 1803; 9,000 + 1,803 = 10,803). The accompanying charts also show these calculations
for the S&P 500 and the NASDAQ Composite Index.
Any upsurge from the head and shoulders breakout should come in volatile stages,
not a repeat of the rampant Bull Markets of the 90’s. So, it is not a
time to “buy and forget” (it never was). But, as long as the market
continues its long term pattern of higher highs and higher lows, investors should
have a good environment for selecting individual issues and a buy and sell strategy
that could produce annual double-digit returns.
Carl M. Birkelbach is Founder, Chairman and Chief Executive Officer
of Birkelbach Management Corp., a Chicago based money manager since 1974
and a registered investment advisor, and Birkelbach Investment Securities,
Inc. (BIS). BIS is a securities Broker-dealer registered with the U.S. Securities
and Exchange Commission and a member of FINRA, the leading private-sector
provider of financial regulatory services. BIS provides safekeeping and
execution services through its relationship with Pershing LLC, the world’s
leader in correspondent brokerage services.
He became known to the investment community as the “Lone Bull”
by being one of the few stock market commentators who, in the sideways-moving
market of the 1970’s and early 1980’s, foresaw the bull market
of the rest of the 1980’s and 1990’s.
Mr. Birkelbach has applied his nearly 40 years of investment experience
as author if “Stock Market Forecasting Through Charting” and
editor of more than 500 BIS Investment Strategy Letters. He has also appeared
frequently as a market commentator on television and radio news programs
and as a quoted source in business/financial journals and periodicals. |
June 2005
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Giant Head and Shoulders Formation
(2001 – 2005)
10,753 – 7,197 = 3,556;
3,556 + 10,753 = 14,309
Projected Goal? (14,309 + 32%)
Small Head and Shoulders Formation
(2002 – 2003)
9,000 – 7,197 = 1,803;
1,803 + 9,000 = 10,803
Projected goal completed 2005
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Giant Head and Shoulders Formation
(2001 – 2005)
1,170 – 768 = 402;
402 + 1170 = 1,572
Projected Goal? (1,572 + 31%)
Small Head and Shoulders Formation
(2002 – 2003)
1,000 – 768 = 232;
232 + 1000 = 1,232
Projected goal completed 2005
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Giant Head and Shoulders Formation
(2001 – 2005)
2,000 – 1,108 = 892;
892 + 2000 = 2,892
Projected Goal? (2,892 + 45%)
Small Head and Shoulders Formation
(2002 – 2003)
1,600 – 1,108 = 492;
492 + 1600 = 2,092
Projected goal completed 2005
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Shown in the first of the three charts, is a giant head and shoulders bottom
formation for the Dow Jones Industrials index. As observed by Carl Birkelbach,
chairman and CEO, Birkelbach Management Corp., a breakout past the formation’s
neckline (top solid line) to a level above 10,868 could give the market enough
“technical spring power” to reach 14,309. Bottom solid line is
the neckline for the small head and shoulders bottom formation that predicted
the Dow’s upsurge in 2003.
Chart Courtesy of CNBC.COM
| Media Contacts: |
| |
| Carl M. Birkelbach |
| (312) 853-2820 x 105 |
| (800) 458-2358 x 105 |
| CarlBis@aol.com |
| (To avoid identification as spam, please write “CB:” at
start of subject line) |
| |
| E. William Hammons |
| (847) 577-1932 |
| EWHammons@compuserve.com |