by Profit Scanner | March 20, 2014 9:03 am
In professional wrestling, the stars are always competing for a belt but it seems that World Wrestling Entertainment (WWE) is taking home a pennant instead – a bullish pennant pattern on its chart.
Technical analysis tells us that a bullish Pennant pattern means a stock’s price appears to be resuming a sharp rally after taking a temporary pause. A bullish Pennant pattern occurs during a dynamic market rally, representing a brief period of indecision before the stock runs off again in the same direction. The pattern consists of two converging trend lines with diminishing volume, and is confirmed when the price breaks through the upper boundary to resume the advance.
A Pennant is a fairly short-term pattern, with the upside move in World Wrestling Entertainment stock expected to resolve in the next 8 trading days. This occurrence happened on significant volume of 1.4 shares, which adds weight to the pattern.
WWE stock closed Wednesday at $31.14, and the Pennant pattern puts the target at $39.25 to $41.25. That’s a 26% move if the stock follows through.
World Wrestling Entertainment’s Pennant pattern seems to be telling traders, “Let’s get ready to rumble!” but a stop loss is always a good idea. While every traders risk tolerance is different, a reasonable stop price for the average trader is $28.09.
Options are available on World Wrestling Entertainment stock, but with March expiration occurring on Friday, we’d recommend moving to the April series. There’s fairly strong open interest in the at-the-money April $30 calls for a more “conservative” trade and the out-of-the money April $35 calls that might offer a fun speculation for a little Vegas money. With the Pennant pattern expected to resolve in 8 trading days, paying for more time with longer-dated options makes about as much sense as Warren Buffett jumping head first off the ropes to attempt a Superfly Splash.
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