BHP Billiton Limited discovers, acquires, develops, and markets natural resources worldwide. It operates through four segments: Petroleum, Copper, Iron Ore, and Coal. The company explores for, develops, produces, and markets oil and gas in the Gulf of Mexico, Western Australia, and Trinidad and Tobago. It also explores for copper, silver, lead, zinc, molybdenum, uranium, gold, iron ore, and metallurgical and thermal coal.
Take a look at the 1-year chart of BHP (NYSE: BHP) below with my added notations:
Over the past 6 months, BHP has formed a head and shoulders reversal pattern (red). I have noted the head (H) and the shoulders (s) to make the pattern more visible. The stock’s neckline support is at the $35 level (green). BHP will confirm its H&S if it breaks down through the neckline.
Keep in mind that simple is usually better. Had the H&S pattern never been pointed out, one would still think BHP was moving lower simply if it broke through the $35 support level.
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The Tale of the Tape: BHP has formed a head & shoulders pattern. A short trade could be entered on a break below the $35 level.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT