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 stocks for traders to take advantage of.
Buy the Diamond Bottom
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 LXK for a $34.25 – $35.75 target, with a $25.76 stop.
Short the Megaphone Top
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.
Recommendation: Short XRX for a $7.50 – $7.65 target, with an $8.90 stop.
The length of time a technical pattern takes to develop has an effect on how long the trade will take to play out—so LXK should be a longer-term trade taking at least nine months. XRX is an intermediate-term trade that should play out over the next 6 weeks to 9 months.
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. For more information on which service is for you click here.