Trade of the Day: Agilent Technologies (A)

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Agilent Technologies Inc (A) dropped 2.2% on Friday, underperforming both the broad market and the rest of the tech sector. According to the Profit Scanner powered by Recognia, this move triggered a bearish profit opportunity, as it represents the start of a new downtrend.

At the close on Friday, Dec. 12, the Profit Scanner powered by Recognia identified a Downside Breakout pattern in A’s chart that occurred on 2.3 million shares traded and carries a target range of $36.70–$37.30. This implies further downside of about 6%–8% from Friday’s closing price ($39.72), expected to resolve within 29 trading days.

As the name implies, the Downside Breakout pattern occurs when a stock breaks out through the bottom of a trading range and descends quickly as a new downtrend forms. During the trading range, prices move sideways between two parallel horizontal lines (usually with gaps throughout), and the breakout signals the end to the consolidation period as the market is being flooded with sell orders.

The Profit Scanner powered by Recognia cites a number of criteria that would support the validity of the Downside Breakout. First is the duration of the preceding trading range; the longer the duration, the more significant the breakout. In this case, Agilent remained within its trading range for about a month and a half.

Next is the “narrowness” of the trading range — when comparing the upper boundary with the lower boundary of the range, a small difference between the two implies that the breakout is stronger and more reliable. As you can see in the chart below, Agilent’s range is indeed fairly narrow, only about $2 from top to bottom.

Trade of the Day: Agilent Technologies Inc (A)Another way to verify the Downside Breakout is to look at the direction of the moving average trend. For short-duration patterns like this one, the 50-day moving average should change direction during the duration of the pattern and head in the same direction. Sure enough, for Agilent the 50-day m.a. had been relatively flat but turned sharply lower at the beginning of the trading range and has continued in the same manner throughout.

There is a possible support level not far below Friday’s close, at $39.49, so that is something for traders to be mindful of; resistance doesn’t come into play until A shares reach $57.45. The Profit Scanner powered by Recognia places a tight stop on this trade at a close above $42.73.

For those seeking bearish profits via put options, Agilent has a pretty robust options chain. The A Jan. $40 puts are trading at $1.50, with open interest of 2,537 contracts, while the A Feb. $40 puts are trading at $1.94 with open interest of 820 contracts. (Note that the latter option, while a little more expensive, also buys you a little more time for the pattern to play out.) Should A stock continue to head lower toward the Profit Scanner’s $36.70–$37.30 target range, both options should pay off with fat downside profits.

Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.


Article printed from InvestorPlace Media, https://investorplace.com/2014/12/trade-day-agilent-technologies/.

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