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 two food processing stocks.
A bullish flag follows a steep, or nearly vertical rise in price, and consists of two parallel trendlines that form a rectangular flag shape. The flag can be horizontal (as though the wind is blowing it), however, it often has a slight downtrend.
The vertical uptrend that precedes a flag, may occur because of buyers’ reactions to a favorable company earnings announcement, or a new product launch. The rectangular flag shape is the product of consolidation. Consolidation occurs when the price seems to bounce between an upper and lower price limit. This might occur, for example, in the days following a positive product announcement, when the excitement is starting to subside, and fewer buyers are willing to pay the high price that was commanded just a few days before. But, at the same time, sellers are unwilling to sell below a lower support limit.
A bullish signal occurs when the price rebounds beyond the upper trendline of the flag formation, and continues the original upward price movement. This is considered a pattern confirmation.
Recommendation: Buy MDLZ for a $30.30 – $30.60 target, with a $27.27 stop.
A bearish continuation wedge consists of two converging trend lines. The trend lines are slanted upward at an angle. This is because prices edge steadily higher in a converging pattern i.e. there are higher highs and higher lows. A bearish signal occurs when prices break below the lower trendline.
Over the weeks or months that this pattern forms the trend appears upwards but the long-term range is still downward. Volume should diminish as the pattern forms.
Recommendation: Short DF for a $15.00 – $15.80 target with a $19.64 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.