All day I scan the charts looking for technical patterns to trade, both to the long and short sides. My Trending 123 Pattern Scan powered by Recognia is one useful tool I have to scan the markets quickly, and it is showing two technical events that you can take advantage of for about $10. The short pattern could even take less than $10 if it works out well and you are able to sell back shares to your broker at a lower price.
Buy the Continuation Wedge
Click to EnlargeE*TRADE Financial Corp. (NASDAQ:ETFC) provides online brokerage services to retail investors, and its stock has developed a bullish continuation wedge over the past 20 days. It closed at $10.39.
After a temporary interruption, the prior uptrend is set to continue. A bullish continuation wedge 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.
Volume should diminish as the pattern forms.
Recommendation: Buy ETFC for a $12.00 – $12.40 target, with a $9.72 stop.
Short the Descending Continuation Triangle
The increasingly lower highs and constant lows within this pattern tell us that sellers are more aggressive than buyers, confirmed by a break down through a support level to signal a continuation of the prior downtrend. A descending continuation triangle, with its increasingly lower highs and constant lows, indicates that sellers are more aggressive than buyers. The pattern typically forms because a demand for shares is available at a certain price, represented by the lower flat line propping the price up. But when the supply depletes, the shares quickly break down below the bottom boundary line and move lower.
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 made based on this pattern.
Recommendation: Short SYX for a $6.90 – $7.40 target, with a $10.16 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.