All day I scan the charts looking for technical patterns to trade. My Trending 123 Pattern Scan powered by Recognia is one useful tool I have to scan the markets quickly, and it is showing two polar opposite technical events for these two oil and natural gas stocks.
Long-Term Bullish Pattern: Diamond Bottom
A diamond bottom is considered a bullish signal, indicating a possible reversal of the current downtrend to a new uptrend.
Diamond patterns usually form over several months in very active markets. Volume remains high during the formation of this pattern.
The diamond bottom pattern occurs because prices create higher highs and lower lows in a broadening pattern. Then the trading range gradually narrows after the highs peak and the lows start trending upward.
Watch for the 200-day moving average to flatten out. Then watch for the 50-day moving average to cross above the 200-day moving average. This should signal the breakout.
Recommendation: Buy CHK for a $26.00 – $27.00 target.
Short-Term Bearish Pattern: Hanging Man
Click to EnlargeMagnum Hunter Resources Corp. (NYSE:MHR) is an oil and gas company operating in West Virginia, Ohio, Texas, Kentucky, North Dakota and Saskatchewan, Canada. The stock has developed a short-term hanging man pattern over the past five days.
The hanging man is a bearish signal indicating that the prior uptrend is about to end and may reverse to a downtrend or move sideways. This pattern is an indication of a financial instrument’s short-term outlook.
The name “hanging man” is used because it has a gloomy connotation, and also because the candlestick that defines this pattern looks like a hanging man with dangling legs.
The hanging man pattern is characterized by a small real body near the top of the price range. The real body can be filled-in or empty, although a filled-in candlestick (blue on the chart) is preferable. A filled-in candlestick is slightly more bearish since it shows that the close could not get back up to the opening price level. The hanging man has a long lower shadow that should be at least twice the length of the real body. The upper shadow should be very small or non-existent.
A hanging man can be confirmed by a bearish gap between the real body of the hanging man and the open on the next session. In other words, the investor should look for the next session opening lower than the real body of the hanging man. The greater the gap, the stronger the signal.
Recommendation: Exit any long positions in MHR.
InvestorPlace advisor John Lansing tracks the charts all day and offers expert technical analysis in his day trading, options and trading services: Power Trading at the Open, Parabolic Options and Trending123. For more information on which service is for you click here.