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 much-hyped business services stocks.
Ascending Continuation Triangle
Click to EnlargeEveryone loves to hate Blackberry (NASDAQ:BBRY) but at least in the intermediate term, investors’ ire isn’t really warranted. The stock has developed an ascending continuation triangle over the past 99 days.
An ascending continuation triangle shows two converging trendlines. The lower trendline is rising and the upper trendline is horizontal.
- This pattern occurs because the lows are moving increasingly higher but the highs are maintaining a constant price level.
- The pattern will have two highs and two lows, all touching the trendlines.
- This pattern is confirmed when the price breaks out of the triangle formation to close above the upper trendline.
Volume is an important factor to consider. Typically, volume follows a reliable pattern: volume should diminish as the price swings back and forth between an increasingly narrow range of highs and lows. However, when breakout occurs, there should be a noticeable increase in volume. If this volume picture is not clear, investors should be cautious about decisions based on this triangle.
Recommendation: Buy BBRY for a $19.30 – $20.00 target, with a $13.68 stop.
Click to EnlargeGroupon (NASDAQ:GRPN) is another one of those stocks constantly bashed in financial media—but perhaps with good reason. The stock has developed a diamond top pattern over the past 51 days.
The diamond top 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.
To confirm this pattern, watch for the 200-day Moving Average to flatten out. Then watch for the 50-day Moving Average to cross below the 200-day Moving Average. This should signal the breakout. There should be support at the turning point of the lows and resistance at the top peak of the diamond.
Recommendation: Short GRPN for a $3.30 – $3.70 target, with a $6.19 stop.
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.