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 natural gas and oil stocks.
Buy the Bullish Symmetrical Continuation Triangle
Click to EnlargeBonanza Creek Energy (BCEI) is an oil and natural gas acquisition, exploration, development and production company that has developed a bullish symmetrical continuation triangle over the past 18 days.
The price has broken upward out of a consolidation period, suggesting a continuation of the prior uptrend. A 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 out above the upper trendline with a noticeable increase in volume, confirming the pattern as a continuation of the prior uptrend.
Recommendation: Buy for a $40.90 – $41.80 intermediate-term (six weeks to nine months) target.
Short the Bearish Pennant
Click to EnlargeChesapeake Granite Wash Trust (CHKR) is a natural gas trust with royalty interests in western Oklahoma’s Colony Granite Wash play. It has developed a bearish pennant over the past 15 days.
The price seems to be resuming a sharp decline after taking a brief pause. A bearish pennant pattern occurs during a dynamic market decline, representing a brief period of indecision before running off again in the same direction. The pattern consists of two converging trend lines with diminishing volume, and is confirmed when the price breaks down through the lower boundary to resume the decline.
Recommendation: Short for an $11.00 – $11.60 target, but be aware that this is a dividend stock. The next ex-div date should be in August, but I anticipate this is a much shorter-term trade that should play out within about two weeks.
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.