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 similarly named, but polar opposite technical events for these two food stocks.
A megaphone bottom (also known as a broadening bottom) is considered a bullish signal, indicating that the current downtrend may reverse to form a new uptrend.
This rare formation can be recognized by the successively higher highs and lower lows, which form after a downward move. Usually, two higher highs between three lower lows form the pattern, which is completed when prices break above the second higher high and do not fall below it.
The pattern is completed when, usually on the third upswing within the pattern, prices break above the prior high but fail to fall below this level again.
Recommendation: Buy to open DRI for a $51.20 – $51.90 target, with a $47.21 stop.
Bearish Symmetrical Continuation Triangle
A bearish symmetrical continuation triangle shows two converging trendlines. The lower one is ascending, and the upper one is descending. The formation occurs because prices are reaching both lower highs and higher lows. The pattern will display two highs touching the upper (descending) trendline and two lows touching the lower (ascending) trendline.
This pattern is confirmed when the price breaks out of the triangle formation to close below the lower (ascending) trendline. Investors should see volume decreasing as the pattern progresses toward the apex of the Triangle. At breakout, however, there should be a noticeable increase in volume.
Technical analysts pay close attention to how long the triangle takes to develop to its apex. The general rule is that prices should break out – clearly penetrate the lower trendline – somewhere between three-quarters and two-thirds of the horizontal width of the formation. The break out, in other words, should occur well before the pattern reaches the apex of the triangle. The closer the breakout occurs to the apex, the less reliable the formation.
Recommendation: Short JVA for a $4.60 – $5.10 target, with a $8.83 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.