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 Ascending Continuation Triangle
Click to EnlargeKB Homes (NYSE:KBH), a company that builds single family homes, condos and townhouses, has seen an ascending continuation triangle in its stock over the past 67 days.
The increasingly higher lows and constant highs within this pattern tell us that buyers are more aggressive than sellers, confirmed by a breakout through a resistance level to signal a continuation of the prior uptrend. An ascending triangle, with its increasingly higher lows and constant highs, indicates that buyers are more aggressive than sellers. The pattern typically forms because a supply of shares is available at a certain price, represented by the upper flat line. When the supply depletes, the shares quickly break out from the top trendline and move higher.
Recommendation: Buy KBH for a $20.80 – $21.60 intermediate-term target, with a $17.78 stop.
Short the Diamond Top
Click to EnlargeRyland Group (NYSE:RYL) is a homebuilder stock that has developed a diamond top pattern over the past 83 days.
The price seems to have reached a top, showing signs of reversal as it has broken downward after a period of uncertainty or consolidation. The diamond top pattern begins during an uptrend 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 downward out of the diamond’s boundary lines, it marks a significant reversal to a new downtrend.
Recommendation: Short RYL for a $28.00 – $29.75 intermediate-term target, with a $41.49 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. 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.
