Berkshire Hathaway Inc. operates as a holding company. It provides property and casualty insurance and reinsurance, as well as life, accident, and health reinsurance; and operates railroad systems in North America. The company also generates, transmits, and distributes electricity primarily from solar, wind, nuclear, geothermal, and hydro sources; operates natural gas distribution and storage facilities, interstate pipelines, and compressor and meter stations; and holds interest in coal mining assets. In addition, it offers real estate brokerage services; invests in fixed-income and equity instruments; and engages in manufactured housing and finance business, leasing of transportation equipment, and furniture leasing activities.
Take a look at the 1-year chart of Berkshire (NYSE: BRK.B) below with my added notations:
Over the past 7 months, BRK.B has created a key trendline of support (green), which is also the “neckline” for the stock’s potential head and shoulders (H&S) reversal pattern. Above the neckline you will notice the H&S pattern itself (red). Confirmation of the H&S would occur if BRK.B were to break the support, and lower prices would be expected from there.
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The Tale of the Tape: BRK.B has almost finished forming a head & shoulders pattern. A long trade could be made at the trendline with a stop placed below that line, but ideally, the pattern implies a short trade to be entered on a break below that level instead.
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
Follow me on Twitter: @cmtstockcoach