Archive for the ‘Technical Talk’ Category

•  The inverse to the Bull Flag, the Bear Flag is a bearish continuation pattern that appears in a downtrend after a significant bearish move with volume.

•  The Bear Pennant is very similar to the Bear Flag.  The difference is that the consolidation is in the form of a small symmetrical triangle.  The bearish entry is just below the lower trend line of the triangle.

•  The stock will cease its fall as shorts cover their position.  The stock should consolidate in a sideways to slightly bullish fashion with decreasing volume.

•  The short entry is the break of the low of the flag.  The target should be the initial move down added to the bearish breakdown point.  Look for increased volume on the breakdown from the flag.

•  The stock falls quickly on increasing volume and smart traders begin to take profits as the stock moves sideways to up on decreasing volume.

•  The bearish entry at the low of the flag provides an excellent entry as the stock continues its’ move down on increasing volume.

•  The projected target is the length of the initial move down to the flag added to the breakdown point out of the flag.  Increased volume on the move will confirm the quality of the continued bearish sentiment.

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•The Bull Flag is a bullish continuation pattern that is characterized by a large and relatively quick upside move followed by profit taking as represented by a tight sideways to slightly bearish consolidation on decreasing volume.

•A Bull Pennant is very similar to a Bull Flag; the difference is that the consolidation is in the form of a small symmetrical triangle.  The upside breakout point is just above the upper trend line of the triangle.

•The resumption of the upside move occurs when the stock trades above the high of the flag on increasing volume.

•The consolidation is nothing more than profit taking and should be expected after a fairly large, rapid gain in the stock.

•The stock rises quickly with volume and smart traders begin to take some off the table which causes the pause.  This is normal and expected. 

•In my opinion, the Bull Flag is one of the most consistently bullish entries in trading.

•Once the stock breaks the high of the flag your target should be the length of the initial move in the trade (The Pole) added to the top of the breakout point.

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• This is a falling and converging channel pattern.  It looks like the beginnings of a triangle as both trend lines are falling and converging.
• The lower trend line is putting in lower lows but not at the pace of the upper trend line.  The pattern has bullish implications as the stock will usually break to the upside out of the channel.
• The pattern can be found in both bullish and bearish markets.
• When in a bearish market, the pattern is defined as a reversal pattern.
• When in a bullish market, the pattern is a continuation pattern.
• The stock is putting in lower lows but at a slower rate than the highs. 
• Volume is diminishing indicating a lack of conviction in driving the stock lower.
• When the stock breaks the upper trend line it will usually be on increased volume as the stock breaks out of the channel to the upside.

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• This is a rising and converging channel pattern.  It looks like a triangle with the trend lines converging as both the upper and lower trend lines are ascending.
• The pattern has bearish implications as the lower trend line’s slope is steeper than the upper trend line and usually breaks down out of the channel bearishly.
• The pattern can be found in both bullish and bearish markets.
• When in a bullish market, the pattern is defined as a reversal pattern.
• When in a bearish market, the pattern is technically a continuation pattern.
• The pattern is putting in higher highs and lows but the highs are slower to develop as the lows are more dramatically higher.
• Volume is diminishing as the stock moves higher showing less conviction on the move.
• When the stock breaks the lower trend line it should be on increased volume.

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•The Head and Shoulders pattern is a bearish reversal  that is found at the top of a trend and is comprised of three tops. 

 •The first top is the left shoulder and is usually formed on increasing volume.

 •The stock then pulls back to form a low and then thrusts higher than the first shoulder to form the head on lower volume.

•The stock then pulls back again to form another low before moving up for one final time to form the right shoulder.

 •The downside trigger occurs when the stock  pulls back and breaks the trend line drawn between the two lows, called the neckline.

Head and Shoulders Psychology

•The head which is a higher high is formed on diminished volume which shows a lack of conviction on the move.

•The stock then forms the right shoulder after the second reaction low and volume picks up as the stock breaks the neckline.

• The second reaction low between the Head and the right shoulder forms what amounts to a double bottom with the first reaction low between the first Shoulder and the Head.

•The stock moves down off of the right shoulder and breaks the neckline (double bottom). 

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Double Bottom

•This Chart Pattern is a bullish reversal  pattern that appears at the bottom of a downtrend and is characterized by a definitive bottom followed by a bounce and then a retracement to a second bottom that ceases its decent at or very close to the first bottom.

 • The stock’s volume should be diminishing as it makes the second bottom and then moves boldly up on increased volume ideally exceeding the peak of the bounce off the first bottom.

Double Bottom Psychology

•This pattern is the inverse of the Double Top and appears after a downtrend. 

 •Buying pressure enters the stock at the first bottom and begins to push the stock higher.

 •Shorts begin to cover on the bounce off the bottom as new buyers come into the stock.

 •As the bounce falters and begins to retrace back to the first bottom , buying once again enters the picture as the investment community determines the level to be a good buying opportunity.

 •As the stock comes off of the second bottom, it should do it with increased volume and surpass the middle peak.

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