All day I scan the charts looking for technical patterns to trade, both to the long and short sides. My Trending123 Pattern Scan powered by Recognia is one useful tool I have to scan the markets quickly, and it is showing two technical events in these financial stocks for traders to take advantage of.
Trade This Bullish Continuation Wedge
Scientific Games’ (NASDAQ:SGMS) continuation wedge pattern may throw some traders for a loop, as over the weeks or months that this pattern forms the trend appears downward but the long-term range is still upward. Prices edge steadily lower in a converging pattern i.e. there are lower highs and lower lows. A bullish signal occurs when prices break above the upper trendline.
After a temporary interruption, the prior uptrend is set to continue. A Continuation Wedge (Bullish) 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 SGMS with an upside target of $11.10 to $11.60 in about 50 days; use a stop at $7.23.
Short This Megaphone Top
CommVault Systems (NASDAQ:CVLT) has history of bearish technical events going back to March, and the future doesn’t look any brighter for this application software play. The latest bearish pattern to emerge on CVLT’s chart, a megaphone top, puts the downside target some 20% from where it is now.
The recent broadening action tells us that trading has been out of control, but a breakout on the downside suggests we’re starting a more decisive downtrend. With its broadening price swings, the Megaphone represents a market that’s unstable and out of control. It typically consists of two successively lower lows between three higher highs, and the reversal signal occurs when the price breaks down below the second trough (the lowest lows) as a sign of a more decisive bearish move.
The creation of the pattern reflects a period of time when bulls and bears are battling to gain control of the stock. The pattern occurs after the bulls have been charging and driving the stock price appreciably higher. During the formation of the Megaphone Top, however, bears are exerting increasing influence on the price and causing it to set a series of lower lows. The increasing volatility eventually creates a sense of uncertainty, leads to profit-taking, and deters some of the bulls from making any further commitments. The bears eventually triumph.
Recommendation: Short CVLT with a downside target of $54.00 to $57.00 in about 44 days; use a stop at $83.67.
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 andTrending123. Trending123 members receive access to the Trending123 Pattern Scan powered by Recognia free as part of their membership. For more information on which service is for you click here.