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Topping Price Formation - Head and Shoulders Top

A head and shoulders includes three tops; left shoulder (LS), head and right shoulder (RS). The peak price of the head is the highest of the three tops.

Below is a head and shoulders top chart of weekly closes from Quandl for Lennar (LEN).

The red line, a support level called the neckline, connects the bottoms of the left shoulder and the head. Notice the steep price downside after the neckline support is broken.

See Bottoming Price Formation - Reverse Head and Shoulders for an example of a head and shouders bottom.

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