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 semiconductor stocks.
The price seems to have reached a bottom, showing signs of reversal as it has broken upward after a period of uncertainty or consolidation. The diamond bottom pattern begins during a downtrend 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 upward out of the diamond’s boundary lines, it marks a significant reversal to a new uptrend.
Diamond patterns usually form over several months in very active markets. Volume remains high during the formation of this pattern. Support can be found at the turning point of the lows and resistance at the top peak of the Diamond.
Recommendation: Buy INTC for a $24.40 – $25.00 target, with a $19.45 stop.
Bearish Symmetrical Continuation Triangle
The price has broken downward out of a consolidation period, suggesting a continuation of the prior downtrend. A bearish 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 down below the lower trendline with a noticeable increase in volume, confirming the pattern as a continuation of the prior downtrend.
Technical analysts should pay close attention to how long the triangle takes to develop to its apex. The general rule is that prices should break out (clearly penetrating the lower trendline) somewhere between three-quarters and two-thirds of the horizontal width of the formation. The break out, in other words, should occur well before the pattern reaches the apex of the Triangle. The closer the breakout occurs to the apex, the less reliable the formation.
Recommendation: Short PSEM for a $6.30 – $6.45 target, with an $8.23 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.