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 polar opposite technical events for these oil and natural gas stocks.
Click to EnlargeWeatherford International Ltd. (NYSE:WFT), a company that provides supplies and services to oil and natural gas drillers. The stock has developed a bottom triangle pattern over the past 96 days.
A bottom triangle/wedge is considered a bullish signal, marking a possible reversal of the current downtrend.
This pattern is confirmed when the price breaks upward out of the triangle/wedge formation to close above the upper trendline. Volume is an important factor to consider. 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 the breakout occurs, there should be a noticeable increase in volume. If this volume picture is not clear, investors should be cautious.
Recommendation: Buy WFT for a $14.90 – $15.50 target, with a $10.78 stop.
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 breakdown 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.
Recommendation: Short WTI for a $12.30 – $12.70 target, with a $16.65 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.