Callaway Golf Co (NYSE: ELY)

Callaway Golf Company, together with its subsidiaries, designs, manufactures, and sells golf clubs and balls. It offers drivers, fairway woods, hybrids, irons, wedges, and putters. The company also designs and sells golf accessories, such as golf apparel and footwear, golf bags, golf gloves, headwear, towels, umbrellas, eyewear, and travel gear under the Callaway Golf, Odyssey, and Strata brand names. In addition, it licenses its trademarks and service marks for use on golf related accessories, including golf apparel and footwear, prescription eyewear, golf gloves, umbrellas, and practice aids. The company sells its products directly to golf retailers, sporting goods retailers, and mass merchants; and to third-party distributors in the United States, as well as in approximately 100 countries worldwide.

Take a look at the 1-year chart of Callaway (NYSE: ELY) below with my added notations:

1-year chart of Callaway (NYSE: ELY)

Over the last 10 months ELY has created a key level of support at $7.50 (blue) and that $7.50 level is also the “neckline” support for the stock’s head and shoulders (H&S) reversal pattern. Above the neckline you will notice the H&S pattern itself (gray).

Remember, patterns such as an H&S need to confirm to have the meaning that they imply. Confirmation of the H&S occurred when ELY broke below its $7.50 support.

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The Tale of the Tape: ELY has confirmed a head & shoulders pattern. A short trade could be entered anywhere near $7.50 with a stop placed above that level. A break back above $7.50 could negate the forecast for a move lower, thus a long position could be entered instead.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Follow me on Twitter: @cmtstockcoach