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 education services stocks.
Buy the Bullish Continuation Wedge
Click to Enlarge Xueda Education Group (XUE) is a holding company with subsidiaries that provide personalized tutoring services in China. This small-cap stock has developed a bullish continuation wedge over the past 27 days, meaning the trade is likely to play out over the intermediate term (six weeks to nine months).
After a temporary interruption, the prior uptrend is set to continue. A continuation wedge pattern represents a temporary interruption to an uptrend, taking the shape of two converging trendlines both slanted downward against the trend. During this time the bears attempt to win over the bulls, but in the end the bulls triumph as the break above the upper trendline signals a continuation of the prior uptrend.
Recommendation: Buy XUE for a $3.55 – $3.65 target.
Short the Bearish Symmetrical Continuation Triangle
The price has broken downward out of a consolidation period, suggesting a continuation of the prior downtrend. The symmetrical continuation triangle shows two converging trendlines as prices reach lower highs and higher lows. Volume diminishes as the price swings back and forth between an increasingly narrow range reflecting uncertainty in the market direction. Then well before the triangle reaches its apex, the price breaks down below the lower trendline with a noticeable increase in volume, confirming the pattern as a continuation of the prior downtrend.
Recommendation: Short DV for a $24.60 – $25.60 target.
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. Trending123 members receive access to the Trending123 Pattern Scan powered by Recognia free as part of their membership.