In technical analysis, a chart pattern indicating the rise and fall of a stock's price throughout a given period and characterized by a peak followed by a decline, a second peak that rises above the first peak followed by a decline, and finally a third rise to a level below the second peak followed by a decline. The first and third peaks are shoulders while the second peak is the pattern's head. Technical analysts generally consider a head-and-shoulders pattern to be a very bearish indicator if the second shoulder declines below a line connecting the bottom points of the two intermediate declines. An upside-down formation is said to be an inverted head-and-shoulders formation and is considered to be a bullish indicator. See also neckline, reversal pattern.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.