Double Tops and Double Bottoms

DoublesA double top occurs when a stock attempts to break out above a recent peak but fails. (Remember, that first peak is resistance!) If a stock doesn’t immediately get through an old peak, it doesn’t mean a double top is forming. In order to get confirmation, the correction low (valley) between the two peaks must be broken to the downside. For a visual representation of this, see figure 5.

When a double top has been confirmed, the price objective is the same distance down from the valley as the distance from the peak to the valley. In our example, the target price is around 11.

The mirror image of a double top is the double bottom. A double bottom formation is a bullish pattern. But care should be taken not to buy into the stock until the formation is confirmed by a breakout above the peak that’s between the two bottoms.

Stock Picks

Loews Corp.

This undervalued stock has strong future earnings growth expectations.


Biogen is the market-share leader in treating multiple sclerosis.


One of Paul Godwin’s favorite stocks in his Cabot Emerging Markets Investor portfolio.

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