Shares of Pandora Media Inc (P) are down about 5% in the last couple of days after suffering some insider selling on Thursday, Dec. 4, when Director Bob Kavner sold 9,000 shares (about a third of his holdings). In November, Pandora began to accumulate above-average short interest, capping off the month with a downgrade to “underperform” from analyst firm FBR Capital Markets.
On Friday, Dec. 5, the Profit Scanner powered by Recognia identified a bearish Descending Continuation Triangle in P’s chart. The pattern carries a downside target of $14.30–$15, or a 17%–21% decline from the Friday close ($18.26), and is expected to resolve in the next 16 trading days.
A Descending Continuation Triangle is marked by increasingly lower highs and constant lows, indicating that sellers are more aggressive than buyers. The pattern typically forms when demand for the shares is stronger 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.
As you can see in the Pandora chart (below), the pattern is then confirmed when the stock breaks down through its support level, which signals a continuation of the prior downtrend.
Pandora has technical support at $18.24; once that level is penetrated, it’s typically a strong signal that the stock will continue lower, and that’s just what happened on Friday (low of day $18.17). Resistance lies about a dollar overhead, at $19.30, and more conservative traders may opt to exit their bearish trades if P shares break above that price. For its part, the Profit Scanner places a protective stop at a close above $21.18.
Traders looking for downside profits on Pandora may want to consider trading the put options. The P January (2015) $19 puts are trading at about $1.80, with 9,469 contracts in open interest, while the P January $18 puts are trading at about $1.20, with open interest of 1,017 contracts. If P shares do in fact trade down to the Profit Scanner’s expected $14.30–$15 target in the next 16 trading days, then both options should enjoy a significant gain.
Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.