CMI - Possible Head & Shoulders

Sometimes patterns are more visible than others and sometimes you have to get a little creative to see whats happening. CMI, although not a textbook example, appears to be in the early stages of exiting from a Head & Shoulders pattern that can put extreme pressure on the stock.

The first warning sign for CMI was when it broke its 50day moving average last week. As you can see from previous instances where a break below its 50day sma occurred, things can get ugly fast. The purple box on the left is one example but the fall below in May2011 as well as Aug2011 are equally visible.

Currently, not only is CMI falling below its 50day sma on an increase in volume but it also appears to be exiting a H&S pattern that is highlighted by the 3 red arcs on the right. Additionally, an extension of the neckline (white dashed line) shows how important this line has been over the past 10 months. Putting these factors together, along with a potential measured move out of this H&S, and we get a price target of approximately $100. (A high volume close over $120 would negate this negative outlook).

Watch for aggressive sellers and shorts to lean on this stock if things get ugly in the broad market and drive CMI back down close to its 200day sma near $100 before buyers find this attractive and step back in.