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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank
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To: HeyRainier who wrote (1935)7/27/1997 3:05:00 AM
From: Robert Graham   of 120523
 
Hello Rainier!

A proper ascending triangle of any signficance would take place over 3 weeks or more at the very least. Patterns of this type I believe are known as "pennants" and they tend to be continuation patterns. Besides, look at the volume. It is important that the volume validates a price pattern. Volume is remaining level and signficant for this stock, and actually is increasing toward the end.

The following is a reprint from Edwards and Magee on pennant formations and their validation:

1. The consolidation (flag or pennant) should occur after a "straight-line" move.

2. Activity should diminish appreciably and constantly during the patterns construction, and continue to decline until the prices break away from it.

3. Prices should break away (in the expected direction) in not more than four weeks. A pattern of this type which extends beyond three weeks should be watched with suspicion.

So this pennant formation is not being confirmed by volume. Usually pennant formations are a continuation pattern. However, this type of what I will term a pseudo-pennant formation actually has a likelihood of breaking out on the upside. If this happens, it will amount to a "minor" reversal area instead of a true consolidation. However, the effect of such a formation can be short term in duration. I would look at the OBV and OB/OS indicators for evidence of this possability, particularily on the breakout.

From a quick look, I see this as a possible "false" breakout from which after an initial upward breakout may then dip back and even trade horizontally for a period of time. Good for the very short term trade only. Look at the price pattern which is a downward widening trend channel. The price also has not broken out from its trend line yet. So the downtrend is technically still intact. Stochastics are in oversold terratory and touching its 70 line. And on breakout the price will meet immediately with a significan resistance line at 6.5 and another resistance line at about 7. But the next day or two should tell.

Bob Graham
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