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Falling Wedge Continuation Wedge Lesson two
Tuesday, February 6, 2007

Intraday Update - Wedges - Falling Wedge Reversal and Continuation Wedge Part II / Technical Analysis : ANDE, CRS, JOYG

Andersons, Inc. -(ANDE) - Daily Chart - Bullish Continuation Wedge Pattern - Ethanol- Optionable

ANDE is a lower risk Ethanol play. This is our #1 ethanol play. The daily chart of ANDE illustrates that ANDE has broken out of a bullish continuation wedge pattern. Since the breakout of the wedge in November ANDE has traded in a lateral sideways consolidation rectangle pattern. You can see that heavy resistance presents itself at the top of the rectangle at $43.00. It has hit resistance there several times since November. If ANDE can take out $43.00, hopefully prior to earnings, then the next resistance level presents itself at $47.00. Now I would like you to turn your attention to back to May 2006 on the chart. In May, you can see that $42.50 at wave A, was a strong support area. This previous support area,has now turned into resistance. If you look at the moving averages you can see that they too are converging and consolidating within the rectangle. Finally, the Aroon indicator remains in a bearish cross and will likely stay that way until resistance at $43.00 is taken out. The RSI and PPO are showing bullish divergence and the WM% and Stochastics have bottomed and are curving upwards. ANDE is an Investor trade. Entry was issued at $37.40 price target is $70.00 within the next 6 to 12 months. That would represent a gain of 33 points.

Carpenter Tech Corp.- (CRS) - Daily Chart - Bullish Continuation Wedge Pattern / Symmetrical Triangle - Basic Metals - Optionable

CRS is also in a Continuation wedge pattern because the trend is bullish / up. If you zoom out into a larger time frame, such as the monthly chart, you can see that CRS is in a wedge type pattern which is also known as a bullish pennant or symmetrical triangle pattern. Continuation wedges can take on the shape of bullish pennant / symmetrical triangle pattern. This occurs because of the ABCDE corrective/consolidation waves create a more symmetrical shape. Whereas other wedges create a more slanted wedge because the corrective geometrical wave structure is different. The daily chart of CRS illustrates the symmetrical nature of the continuation wedge. CRS placed it's recent lows at the bottom of the symmetrical triangle at wave E or $96.20. At this point volume came in to support the stock at the lows. Then when CRS broke out of the symmetrical triangle, you can see that expanding volume, and a triple cross in the moving averages confirmed the breakout. In addition the indicators and oscillators had a 123 bullish trend reversal. CRS is currently breaking out of a bull flag. The buy alert for CRS was triggered at $109.63. It is a swing trade, meaning that it is meant to be held for 3 to 6 months or until price target is reached at 71 points higher at $180.00.

JOY GLOBAL INC- (JOYG)- Daily Chart - Bullish Continuation Wedge Pattern / Symmetrical Triangle - Industrial Goods - Optionable

As you can see JOYG is in a bullish continuation wedge pattern. The wedge has presented itself as a bullish symmetrical triangle. JOYG has just broken out above the wedge on steady volume. If you look at the moving averages, you can see that they have crossed over and are trading in a bullish fan. The Aroon indicator is still in a bearish trend reversal. However, the rest of the indicators and oscillators are confirming the recent breakout with bullish divergence. The buy alert for JOYG was triggered on December, 19th 2006 at $49.00. It is a medium risk swing trade, meaning that it is meant to be held for 3 to 6 months or until price target is reached at $76.00. That would be a gain of 27 points.

Edited by Daisy
Andrea Victoria Friend aka Daisy
Editorial Assistant for Trending123.com


Falling Wedge Continuation Pattern


Implication


A Continuation Wedge (Bullish) is considered a bullish signal. It indicates a possible continuation of the current uptrend.


Description


A Continuation Wedge (Bullish) consists of two converging trend lines. The trend lines are slanted downward. Unlike the Triangles where the apex is pointed to the right, the apex of this pattern is slanted downwards at an angle. This is because prices edge steadily lower in a converging pattern i.e. there are lower highs and lower lows. A bullish signal occurs when prices break above the upper trendline.

Over the weeks or months that this pattern forms the trend appears downward but the long-term range is still upward. Volume should diminish as the pattern forms.

Falling Wedge

Trading Considerations


Pattern Duration
Consider the duration of the pattern and its relationship to your trading time horizons. The duration of the pattern is considered to be an indicator of the duration of the influence of this pattern. The longer the pattern the longer it will take for the price to move to the Target. The shorter the pattern the sooner the price move. If you are considering a short-term trading opportunity, look for a pattern with a short duration. If you are considering a longer-term trading opportunity, look for a pattern with a longer duration.


Target Price
The target price provides an important indication about the potential price move that this pattern indicates. Consider whether the target price for this pattern is sufficient to provide adequate returns after your costs (such as commissions) have been taken into account. A good rule of thumb is that the target price must indicate a potential return of greater than 5% before a pattern should be considered useful. However you must consider the current price and the volume of shares you intend to trade. Also, check that the target price has not already been achieved.


Criteria that Supports


Volume
Volume should diminish as the pattern forms.


Criteria that Refutes


Moving Average
The penetration of the 200-day Moving Average by the price is a false bear signal.


Rising or Stable Volume
Volume should diminish as the pattern forms. If volume remains the same or increases this signal is less reliable.


Underlying Behavior


In this pattern prices edge steadily lower in a converging pattern i.e. there are lower highs and lower lows indicating that bears are winning over bulls. However, at the breakout point the bulls emerge the victors and the price rises.


Although it appears things are changing and the "BULL" is lurking, this pattern is typically "corrective" in nature to a larger trend or pattern. These wedges can typically retrace 50-65% of the FALL before it resumes the primary trend.


Statistics
Percent of successful formations – 81% Average rise of successful formations – 46% Likely rise – 20% Failure rate - 37% Average time to throwback completion – 11 days

Falling Wedge

 


ANDE
Stock Charts
CRS
Stock Charts
JOYG
Stock Charts