Potential Double Top Formation for Danaher Corp
Â
For our highest level analysis, subscribe to QR+! Use the discount code "LP100" at checkout for a 5% discount
Â
Recent price action in US conglomerate Danaher Corp is tracing out what has the potential to develop into a double top pattern in the coming days, with roughly equal peaks established on November 9th of last year and February 16th of this year. This is an interesting formation to watch, and may present a good selling opportunity in the near future.
Figure 1 shows the daily candlestick chart. The double peaks topped at around $248 per share, with the trough between them making a low around $212. It’s important to note that this pattern is not yet confirmed. Thus far, the price action merely has the potential to develop into a double top. In order for the pattern to be confirmed, price must fall below the 212 level. Until that occurs, technically, the double top does not exist.
A deeper insight into the price behaviour can be gleaned from figure 2, which shows the volume action accompanying price. Compare the behaviour of volume during the two peaks. In the run up to the first peak, highlighted in red, volume increased significantly. This is a sign that market participants were increasingly interested in participating in the upward move, and increasingly interested in committing capital to the upside. Momentum was still favourably bullish for the first peak. Contrast this with the second peak of the pattern, highlighted in blue, where volume contracted substantially. Contrary to the first peak, the declining volume is showing that market participants were becoming less and less interested in participating in the upward move, with gradually less capital being committed to the move. This is a sign that bullish momentum was waning, and a downtrend is likely to ensue. It can be inferred from volume action that this is likely to develop into a confirmed double top pattern, and we should see a reasonably significant downtrend follow. To continue confirming the bearish pattern, volume should continue to expand throughout the downside breakout, and contract on any retest of the $212 level.
If price does break below $212, and the double top is confirmed, the measured move price projection method can be employed to obtain likely price targets. Using a 1:1 minimum price projection target, shown in figure 3, the vertical distance between the two peaks and the trough between them is copied exactly, and projected downward from the breakout level of $212. The resulting target is around $176.
With price and volume action both indicating further moves to the downside for Danaher are likely, there is a very good chance that a double top formation is confirmed soon. In that case, the share price can be expected to decline to at least around $176. It should be noted that if, once the pattern has been confirmed, price rallies back up to and beyond the $248 level, the double top will be considered to have failed and all bearish sentiment pertaining to the pattern will be neutralised. Watch this stock carefully.