Elliott Wave Patterns in Bull & Bear Markets.Video: Understanding Elliott Wave Theory & Principles.Bull flags have been rare over the last few months of 2008, but they have been beginning to surface in conjunction with the recent market rally. It is important to note that these patterns work the same in reverse and are known as bear flags and pennants. The breakout from a flag often results in a powerful move higher, measuring the length of the prior flag pole.
Basically, despite a strong vertical rally, the stock refuses to drop appreciably, as bulls snap up any shares they can get. The shape of the flag is not as important as the underlying psychology behind the pattern. Another variant is called a bullish pennant, in which the consolidation takes the form of a symmetrical triangle. The flag can be a horizontal rectangle, but is also often angled down away from the prevailing trend. The pole is the result of a vertical rise in a stock and the flag results from a period of consolidation. They are called bull flags because the pattern resembles a flag on a pole. By drawing a trend line parallel to the upper boundary of the pattern, the extension estimates a decline to around 20.īullish flag formations are found in stocks with strong uptrends. With a break of support at 29 1/2, the measured decline was estimated to around 19. The widest point on the pattern extended 10 1/2 points. The weakness of the reaction rally foreshadowed the sharpness of the decline that followed.ħ. After the decline from 29 1/2 to 25 1/2, the stock rebounded, but failed to reach potential resistance from the apex. Chaikin Money Flow declined past -30% and volume exceeded the 60-day SMA for an extended period.Ħ. The break occurred with an increase in volume and accelerated price decline. Even at this point, the direction of the breakout was still a guess and its was prudent to wait. After points 5 and 6 formed, the price action moved to the lower boundary of the pattern.
While it is preferable to have an ideal pattern develop, it is also quite rare.ĥ. The breakout occurred a little over 2 weeks later, but proved valid nonetheless. The red square marks the ideal breakout time-span from 50% to 75% of the pattern. There was some increase in volume in late June, but the 60-day SMA remained in a downtrend as the pattern took shape.Ĥ. After the gap up from point 3 to point 4, volume slowed over the next few months. The stock traded within the boundaries for another 2 months to form the last 2 points.ģ. After the first 4 points formed, the lines of the symmetrical triangle were drawn. The low at 22 was probably an over-reaction, but the long-term trend was down and established for almost a year.Ģ. The stock declined from 50 in Mar-98 to 22 in Oct-98 before beginning to firm and consolidate. A Retest of previous resistance is not required to touch or come within several ticks of the old high however, the further the top of the handle is away from the highs, the more significant the breakout needs to be.Ĭonseco (CNCEQ) formed a rather large symmetrical triangle over a 5-month period before breaking out on the downside.ġ. Volume - Volume should decrease as prices decline and remain lower than average in the base of the bowl it should then increase when the stock begins to make its move higher, back up to test the previous high. Avoid handles which are overly deep also, as handles should form in the top half of the cup pattern. Depth - Ideally, the cup should not be overly deep. It is worth considering the following when detecting cup and handle patterns: Length - Generally, cups with longer and more "U" shaped bottoms provide a stronger signal. Below is an example of a cup and handle chart pattern: A cup and handle is considered a bullish continuation pattern and is used to identify buying opportunities.
As a stock forming this pattern tests old highs, it is likely to incur selling pressure from investors who previously bought at those levels selling pressure is likely to make price consolidate with a tendency toward a downtrend trend for a period of four days to four weeks, before advancing higher.
0 kommentar(er)
