An inverse head and shoulders pattern forms when a stock is transitioning from a downtrend to an uptrend. When the pattern "completes" the price could continue to trend higher. The pattern is created by a swing low (left shoulder), followed by a lower swing low (head) and then a higher swing low (right shoulder). Pullbacks (higher) occur after the left shoulder and head; these are referred to as the left and right armpit. The high points of these pullbacks are connected with a trendline (often called the neckline), and extended out to the right. When the price moves above that trendline the pattern is considered complete. These four stocks are very close to completing inverse head and shoulder patterns.

Sanofi (SNY) has a lopsided inverse H&S pattern, showing the buying pressure which has mounted in 2015. The right armpit is much higher than the left armpit, so connecting these two points with a trendline and extending it out ot the right doesn't provide a very useful entry point because the line is angled upward so steeply. In this case, using the high of the right armpit provides a more useful pattern completion point. Using this method the pattern completed when the price moved above $50.62. That price has since been touched on several occasions. The next step is to add the height of the pattern to the breakout point. From low to high the pattern is approximately $7; added to $50.62, the long-term price target is $57.62. A more conservative estimate is $54 — near where the price commenced a dramatic plunge in late October. (For related reading, see: Head and Shoulders Pattern Signals a Move Lower.)

Southern Copper Corp. (SCCO) has been forming an inverse H&S pattern since late 2014. A move above $30.50 breaks the neckline and indicates more upside to come. The target for the pattern is $38.69. Be aware that the inverse and head and shoulders in Southern Copper doesn't come after an extended downtrend. Instead, the pattern covers a large area within a nearly two-year price range extending from $34.46 to $23.60. If the pattern completes, upside momentum could continue, but it doesn't mean the larger range is over. Resistance is expected between $34 and $34.50. Only a strong break through that level allows for the inverse H&S target to be reached. (For related reading, see: How to Trade the Head and Shoulders Pattern.)

Concho Resources, Inc. (CXO) is approaching the $122 breakout point of an inverse H&S pattern which extends back to September. The pullbacks within this pattern reached nearly the same level, showing strong resistance near $122. The 2015 rally and higher swing low in March show the stock is moving well to the upside and a break through resistance is possible. This is no small pattern; it's $45.41 in height. Added to the breakout point the target is $167.41. This target is well beyond the 2014 high of $148.61. The oil and gas company will need a strong boost in oil prices in the coming months, and potentially years, if the target is to be realized. (For related reading, see: Analyzing Chart Patterns: Head and Shoulders.)

Carrizo Oil & Gas Inc. (CRZO) is an oil and gas company in a similar position to Concho. A strong rally in 2015 has brought the price to near the inverse H&S breakout price of $53. The pattern is $23.22 in height, making the target $76.22. That means the price needs to rally more than 50% from the April 2 close ($50.05) in order to reach the target. As with Concho, strong oil prices will be needed to help fuel the rally should the breakout and continuation of the recent uptrend continue. (For related reading, see: Introduction to Technical Analysis Price Patterns.)

The Bottom Line

The inverse head and shoulders is one of the pattern traders watch for to indicate a reversal. Just because the pattern occurs, doesn't mean the target will be reached though. The main issue with chart patterns is false breakouts. This is when the pattern completes, but shortly after the price begins to decline again, resulting in a loss. To control losses place a stop loss order below the right shoulder. Targets are only estimates and should be used with some discretion. For example, the targets in Concho and Carrizo may be reached, but expect that it could take many months or even years due to the size of the target. More active traders will seek a target more in line with their trade timeframe. (For related reading, see: These ETFs are Breaking Out of Chart Patterns Now.)