Head-and-Shoulders Pattern Confirmed in Cybersecurity
Cybersecurity has been one of the hottest industries in the US stock markets in 2020-2021. Stocks like Crowdstrike (CRWD), Palo Alto Networks (PANW), Zscaler (ZS), Fortinet (FTNT) and SentinelOne (S) have been innovative disruptors reshaping the cybersecurity arena. I have been a fan of many of these outstanding firms, their growth prospects, and technology.
But a Head and Shoulders pattern has appeared in HACK, an ETF that tracks the cybersecurity subsector. The pattern was confirmed on January 18, 2022 with a downside breakout followed by a whipsaw higher along with stock markets that lasted into mid-February. But the whipsaw rally failed—note the weekly candle for February with a bearish structure: one has a long upper wick and a close near lows (week of Feb. 7) and the other has a significant upper wick and a close near lows (week of Feb. 14). So it appears that the rally was a whipsaw that reversed the breakout direction temporarily.
A head and shoulders uses the maximum distance from the head's peak to the neckline to project a target from the breakout point. Doing so here, a target can be established approximately 17% lower than the breakout point, which is about 13.54% lower than the weekly close on Friday, Feb. 18, 2022.
Perhaps after more selling occurs, the group will carve out a bottom that provides a constructive entry point for long-term buy and hold strategies for companies in this group.
The ADX and Stochastics are both confirming of the bearish chart patterns. The ADX reveals a strongly trending price for HACK, with -DI rising again after a brief pullback. and Stochastics on a weekly basis are plainly trending below the 70 level, with bounces failing around 30 or lower, which indicates a strong downtrend.
But a Head and Shoulders pattern has appeared in HACK, an ETF that tracks the cybersecurity subsector. The pattern was confirmed on January 18, 2022 with a downside breakout followed by a whipsaw higher along with stock markets that lasted into mid-February. But the whipsaw rally failed—note the weekly candle for February with a bearish structure: one has a long upper wick and a close near lows (week of Feb. 7) and the other has a significant upper wick and a close near lows (week of Feb. 14). So it appears that the rally was a whipsaw that reversed the breakout direction temporarily.
A head and shoulders uses the maximum distance from the head's peak to the neckline to project a target from the breakout point. Doing so here, a target can be established approximately 17% lower than the breakout point, which is about 13.54% lower than the weekly close on Friday, Feb. 18, 2022.
Perhaps after more selling occurs, the group will carve out a bottom that provides a constructive entry point for long-term buy and hold strategies for companies in this group.
The ADX and Stochastics are both confirming of the bearish chart patterns. The ADX reveals a strongly trending price for HACK, with -DI rising again after a brief pullback. and Stochastics on a weekly basis are plainly trending below the 70 level, with bounces failing around 30 or lower, which indicates a strong downtrend.
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