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—both variations on the diamond pattern— in these semiconductor stocks for traders to take advantage of.
Buy the Diamond Bottom
Click to EnlargeIntel (NASDAQ:INTC) develops and manufactures integrated digital technology platforms that have applications ranging from smartphones and PCs to factories and medical systems. Its stock has developed a diamond bottom pattern over the past 82 days.
The price seems to have reached a bottom, showing signs of reversal as it has broken upward after a period of uncertainty or consolidation. The diamond bottom pattern begins during a downtrend as 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. When the price breaks upward out of the diamond’s boundary lines, it marks a significant reversal to a new uptrend.
Recommendation: Buy INTC for a $24.10 – $24.70 intermediate-term target, with a $18.36 stop.
Short the Diamond Top
Click to EnlargeAtmel Corp. (NASDAQ:ATML) produces microcontrollers for several touch products, including buttons, sliders and wheels used in aerospace, industrial and automotive applications. Its stock has developed a diamond top pattern over the past 58 days.
Diamond patterns usually form over several months in very active markets. Volume remains high during the formation of this pattern. The diamond top pattern in ATML indicates a reversal to a downtrend.
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. The event is confirmed when prices break downward out of the diamond formation.
Recommendation: Short ATML for a $5.00 – $5.30 intermediate-term target, with a $7.08 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.