We’ve seen a classic pennant forming on the main indices that seems to be resolving itself to the upside – at least in the short term.
Let’s look at the indices to tell us some more:
SPY
From the chart the OVI is doing its best to keep us guessing with a virtually neutral reading, but the chart itself has had a marginally upward bias and has started to move upwards.
This was repeated in both the Dow and the Nasdaq, though their respective OVIs were suggesting that an upside breakout was marginally more probable, though I must emphasize it’s been marginal at best, and you should hold fire until there’s a clear breakout through resistance.
DIA
QQQ
MTG
MTG was forming a bull flag pattern right up against medium term resistance. We needed it to get through $3.10 and stay that way. The OVI and the flag pattern gave us the heads-up on this.
ESRX
Now here’s a stock with another great pattern and which posted decent news on earnings. The worry was that its failure to continue a deal with Walgreens would severely impact its business – hence the big drop-off in recent months. Well, 95% of its business seems to be secure, so the stock is now reacting to this …
OVI is positive, the bull flag is almost breaking out, volume consolidated until Friday and the OVI is positive. The breakout happened today.
MHS
This is what we like to see …
A bull flag, positive OVI, earnings on the verge of happening and a breakout imminent. The market seemed to be positive in anticipation of earnings here but anything pre-earnings would be a gamble. You could trade the breakout but just be aware it can come back pretty quickly if earnings wasn’t appreciated. Luckily it was and the stock closed today over $58.
SWC
Good earnings with this stock as it approaches the breakout point of its bull flag. It hasn’t quite got there yet so watch this one.
A couple of weeks ago it actually broke out from the $10 resistance upon the positive earnings news, and now it’s thinking of blasting off again.
The only slight problem is the long-ranged bars forming this bull flag – makes it difficult to manage the trade with tight stops.
So, how did I found these stocks and how long did it take?
Well, I used my FlagTrader application and it took around 10 minutes!
I specifically looked for
- Tight flags with
- Average daily volume of greater than 1m shares
- Open interest greater than 500
- Call open interest greater than puts by more than 100%
- OVI positive for at least 5 days
A list of 16 stocks appeared and I just selected a few for you here (apart from PEIX).
Trading doesn’t have to be massively hard work … you just need to specialize on a method that works over the medium term and then refine your trading plan as you spend more time in the markets observing.
Finally today, here’s a non-option-able stock but the pattern doesn’t get much better than this, so it’s worth adding in.
PEIX
We have a long shallow bowl (cup) with a handle forming. This is the pattern that dreams are made of. If the market (and this stock) were to trend up from here, this stock could be your home-run.
However, we don’t have the benefit of hindsight, so what you’d have to do is:
(a) Only trade on a breakout past $0.80.
(b) Keep a tight stop on this one and be prepared to re-enter if it breaks out, comes back and breaks out again. There’s a feeling that this wouldn’t be a straightforward breakout, but it is a delicious pattern and the stock has a lot of potential.
Regards
Guy
