1 Stock to Buy, 1 Stock to Short: Software

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 Symmetrical Continuation Triangle

4-16-13-elliEllie Mae (NYSE:ELLI), a company that offers software-as-a-service to mortgage providers, has developed a symmetrical continuation triangle in its stock over the past 60 days.

The price has broken upward out of a consolidation period, suggesting a continuation of the prior uptrend. A symmetrical continuation triangle shows two converging trendlines as prices reach lower highs and higher lows. Volume diminishes as the price swings back and forth between an increasingly narrow range reflecting uncertainty in the market direction. Then well before the triangle reaches its apex, the price breaks out above the upper trendline with a noticeable increase in volume, confirming the pattern as a continuation of the prior uptrend.

Recommendation: Buy ELLI for a $32.00 – $33.75 target, with a $19.61 stop.

Short the Megaphone Top

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Tyler Technologies
(NYSE:TYL), a company that provides IT solutions to local governments, has developed a megaphone top over the past 29 days.

The recent broadening action tells us that trading has been out of control, but a breakout on the downside suggests we’re starting a more decisive downtrend. With its broadening price swings, the Megaphone represents a market that’s unstable and out of control. It typically consists of two successively lower lows between three higher highs, and the reversal signal occurs when the price breaks down below the second trough (the lowest lows) as a sign of a more decisive bearish move.

Recommendation: Short TYL for a $53.10 – $53.90 target, with a $64.50.

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 OpenParabolic 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.


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