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Bulkowski’s Blog Archive: ITB

Blog Posting: February 19, 2008, Home Construction

Shown in the figure is the DJ US home construction index fund (ITB). To the right of the red line is how a head-and-shoulders bottom would look, if the index plays out like I think it might. Price will continue lower for a week or two and then turn up, leaving a right shoulder to print on the chart. The up turn at the right shoulder low might be called by additional FED lowering of interest rates or some other event.

Why a head-and-shoulders bottom? From the shape of the left shoulder valley (LS) to the sweeping move up and then down again to the head, it just looks like it’s aching to form a mirror of the left shoulder on the right side. This is a guess, of course, but in the absence of anything else, it will have to do.

Aftermath

If you look closely at the first (top most) chart on this page, you can see where I copied the price movement to the right of the red line from the left, starting in mid November, at about $19.

The bottom chart shows how the stock actually behaved. While not an exact match, it sure is close. This "mirroring" (across the red line) is a technique that may turn up some interesting and amazing predictions, as in this case.