Figure 1: FLEX daily chart.
Flextronic's daily chart shows a 3-month rising wedge pattern. I usually refer to this as the rising wall of worry, since it is rising on continually lighter volume until the bottom falls out. This style of pattern can be misdiagnosed as previously discussed, so you can avoid mistakes by focusing on the stock's volume.
|After the breakout in the $9.00 area it dropped to $6.43. I can now anticipate the inevitable pullback to the sell short position of $8.50 - $9.00. Since I have a clear indication of direction with the breakout and subsequent increased volume on the downside, I can prepare to go short along with the general market in the 8200-8300 area. This chart is having a pullback at the same time as the Dow and that is no coincidence. Most equities follow the general market. There are exceptions to this rule but usually this is the safest style of trading. |
|Figure 2: FLEX weekly chart.|
|Graphic provided by: SuperCharts.|
|How far and when? This is a small pattern and therefore has less power behind the anticipated move. However, it is a continuation pattern of the previous trend, which is down. Above is a large awkward looking rectangle on the weekly chart. It is an imperfect rectangle and the volume is shabby, but it is present. Since the large rectangle pattern is not perfect I wouldn't trade this equity until it formed another pattern such as this wedge. It won't take long to drop, perhaps as little as a few weeks and I anticipate it to drop to an all time low below $5.48. Usually it meanders down slowly after the pullback so it will likely take a little more time to unravel. This is unlike a breaking of the third fan line when the equities fall apart at the seams. If I were holding this equity in a long position I would unwind my position on this pullback and sell into the strength.|
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