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Bull Flag Chart Pattern
Sunday, February 18, 2007
 

Implication

A Flag (Bullish) is considered a bullish signal, indicating that the current uptrend may continue.

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Description

A Flag (Bullish) follows a steep, or nearly vertical rise in price, and consists of two parallel trendlines that form a rectangular flag shape. The Flag can be horizontal (as though the wind is blowing it), however it often has a slight downtrend.

The vertical uptrend, that precedes a Flag, may occur because of buyers' reactions to a favorable company earnings announcement, or a new product launch. The sharp price increase is sometimes referred to as the "flagpole" or "mast".

Bull Flag

The rectangular flag shape is the product of what technical analysts refer to as consolidation. Consolidation occurs when the price seems to bounce between an upper and lower price limit. This might occur, for example, in the days following a positive product announcement, when the excitement is starting to subside, and fewer buyers are willing to pay the high price that was commanded just a few days before. But, at the same time, sellers are unwilling to sell below a lower support limit.

A bullish signal occurs when the price rebounds beyond the upper trendline of the Flag formation, and continues the original upward price movement. This is considered a pattern confirmation.

When speaking about Flags, technical analysts may use jargon and refer to the flag as "flying at half-mast". Visually, this reference is nothing like a flag at half-mast, such as on a day of national mourning. Instead, this term refers to the location of the flag - at the mid-point of what would otherwise be a continuous uptrend.

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Important Characteristics

Following are important characteristics for this pattern.

Trendlines

Flags are very similar to Pennants. However, with a Flag, the price trendlines tend to run parallel, whereas with a Pennant, the price trendlines tend to converge.

Volume

As the Flag develops, the volume tends to decrease. Following a positive product announcement, the price may have reached an unexpected high, and fewer buyers will be willing to buy. Interest in the stock may resume, however, as prices drop, and sellers begin to lower their price. The increased activity explains why you will often notice a sharp spike in volume at the end of a Flag.

Duration of the Pattern

Martin Pring notes in his book, Technical Analysis Explained that "Flags can form in a period as short as 5 days or as longs as 3 to 5 weeks." John J. Murphy identifies that Flags "often last no longer than one or two weeks."

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Trading Considerations

Possibility of Price Reversal

In some rare cases, the price will break against the original price movement, and create a reversal trend. The pattern reversal may be signaled during the Flag formation by a sharp increase in volume, as opposed to the more typical decrease.

Duration of the Pattern

The duration of the pattern depends on the extent of the price fluctuations (consolidation). The greater the fluctuations, the longer a pattern will take to develop.

Target Price

It is commonly held that the length of the flagpole indicates the potential price increase. When the Flag completes, the price typically jumps to replicate the height of the original flagpole, while continuing in the direction of the inbound trend.

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Criteria that Supports

Volume

Volume should diminish noticeably as the pattern forms.

A strong volume spike on the day of the pattern confirmation is a strong indicator in support of the potential for this pattern. The volume spike should be significantly above the average of the volume for the duration of the pattern. In addition, the volume over the course of the pattern should be declining on average.

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Criteria that Refutes

Duration of the Pattern

According to Martin Pring, a pattern that exceeds "4 weeks to develop should ... be treated with caution". After 4 weeks, interest in the stock is likely to decrease to point that it is unlikely to continue in a strong uptrend.

No Volume Spike on Breakout

The lack of a volume spike on the day of the pattern confirmation is an indication that this pattern may not be reliable. In addition, if the volume has remained constant, or was increasing, over the duration of the pattern, then this pattern should be considered less reliable and may actually reverse.

Long Inbound Trend

Shabacker writes that, "When a mast is long ... and it's Flag relatively small, we should naturally expect the movement to be pretty well exhausted when its indicated objective is reached." He suggests that when you observe this formation, and a price continuation occurs, it is best to use the flagpole as a "yard-stick" to indicate the level at which to "take profits, step aside, and watch for further chart developments."

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Underlying Behavior

This pattern is effectively a pause in an uptrend. The price has gotten ahead of itself with a steep rise; therefore market activity takes a break before continuing the uptrend. This pause is reflected in the decreasing trading volume. Similarly, a spike in volume marks the resumption of the uptrend.


February, 20th 2007

Weekend Update - New Short Term Trade Bull Flag Set-Ups - USNA, BPO, TTEC, GSTL & ICE 

During a typical 5 day trading week at Trending123, I will normally come up with a handful of short term trades to enter for sudden profits.  I haven't given out any new short term trades in a week, so now I want to give you a handful of some stock charts to study in advance for the forthcoming week.    These are charts of some possible some short term trades that we will enter and play over the next two weeks.  I get these trades primarily from my bullish momentum list, and not from the scan.  I look for strong bullish momentum stocks in this list that are consolidating before they go on to make new 52 highs.  

Short Term Trades and The Short Term Portfolio Instructions

There are very specific instructions for trading stocks in this portfolio.  The stocks in this portfolio are meant to be held for 2 weeks or less.  These stocks are meant to be traded by active/ aggressive/ day traders who are at an advanced or professional level only.  These stocks are geared towards active traders who can watch the market all day and keep up with the market on a daily basis.  If you can not do this, do not trade these stocks.  This advice is for your own benefit.  These trades are party bonus stock plays for active traders because we know that active traders like to trade the short term.  You have to monitor these stocks every day.  The short term portfolio will update the stops each day, and you will need to check the portfolio each day to see if the short term trading pattern has changed, or if you have been stopped out, or if it has broken out of a bull flag, rectangle and so on and so forth.   

Short Term Portfolio link:  http://trending123.com/honorary/short-term.html

What defines a short term trade?

A short term trade is one that is held for less than two weeks for a possible price gain of 10% to  20%.  You may use an equity or an option for these trades.

This is what you need to know about each stock in order to prepare for the trade diligently before each buy trigger / entry:

    1. What is the stock's ticker symbol

    2. What is the stock's average daily volume

    3. How far is the stock above it's EMA moving averages (i.e.: 13 EMA, 34 EMA)

    4. What' is the stock's short ratio

    5. How far is the stock off from it's recent highs (i.e.: -1%, -10%,-20%, etc)

    6. What pattern is the stock in on the daily chart

    7. What Type of Tend is the stock in (i.e.: bullish or bearish )

    8. What direction is the stock in up or down?

Now, for these new set ups I want you to get a piece of paper and look at the charts below and write down all of the items listed  #1-8 from above for each individual stock chart.  This will be you homework.  I want you to figure out in advance which stock you will play.   I will be in the chat room all week discussing these short term trades as they trigger.  Come to the live chat room and learn from me in live real market time!

Common Patterns used for short term trades : 1)  Rectangle / upside breakout pattern  2)  bull flag pattern  3) Ascending Triangles

Bull Flag Pattern

The typical Bull flag pattern occurs after a new high has been placed, it is basically a pullback off of the highs often to the 13 or 34 EMA.  It is a counter trend pullback/ consolidation move against the bullish primary trend.   This counter trend move may consist of a 3 to 5 day sloping pullback maximum.  The pullback should occur on light volume.  After the 3 to 5 day counter trend consolidation is complete, the stock will then resume its upward primary trend.  The Bull flag will of represent waves i to wave ii and wave iii to wave iv of a v wave move.  Entry is not initiated until the stock takes out the previous day's high and breakouts out of the counter trend channel to resume the upward trend.  The bull flag pattern is used in short term bullish trades.

USANA Health Sciences, Inc. - USNA- Daily Chart - Classic Bull Flag Pattern

  • Ticker symbol: USNA  
  • Average Daily Volume : 207.42K, notice the declining volume as it pulls back to from the flag
  • price trading above the 13, 34,and 50 EMA's - looks to decline to the 13 EMA which acts as a magnet for price retracement
  • moving averages trading in a bullish fan
  • Short Ratio =  9.4
  • Percentage off recent high's = 1.75%
  • Daily Chart Pattern = Bull Flag, this chart is a classic example of bull flag, notice the big stick up, which creates a pole and a new high. Then price pauses on light volume to form the counter trend flag
  • Trend = Bullish 
  • Direction = Pull back off 52 week highs to test the 13 EMA
  • all indicators and oscillators are in a 123 bullish trend reversal
  • Trade Set up = Bull Flag play on a break out above the downtrend line
  • enter trade once USNA  takes out the previous day's  highs = $61.05 or higher
  • stop at a penny or 2 below the lows of previous day = $60.24 or thereabouts then trail stop
  • Entry Triggered at  $61.06 on Tuesday 2/20/07

Brookfield Properties Corp. - BPO - Daily Chart - Bull Flag Pattern

  • Ticker symbol: BPO
  • Average Daily Volume : 948.86K, notice the declining volume as it pulls back to from the flag
  • price trading at the 13, and above the 34,and the 50 EMA's - decline to the 13 EMA which acts as a magnet for price retracement ans holding the 13 EMA
  • moving averages trading in a bullish fan
  • Short Ratio =  1.8
  • Percentage off recent high's = 5.79%
  • Daily Chart Pattern = Bull Flag price pause on light volume to form the counter trend flag at the 13 EMA
  • Trend = Bullish 
  • Direction = Pull back off 52 week highs to test the 13 EMA
  • all indicators and oscillators are in a 123 bullish trend reversal
  • Trade Set up = Bull Flag play on a break out above the downtrend line
  • enter trade once BPO takes out the previous day's  highs = $46.69 or higher
  • stop at a penny or 2 below the lows of previous day = $44.58 or thereabouts around the 34 EMA
  • Entry Triggered at  $46.70 on Tuesday 2/20/07

TeleTech Holding Inc.- TTEC - Daily Chart - Bull Flag Pattern

  • Ticker symbol:TTEC
  • Average Daily Volume : 763.68K, notice the declining volume as it pulls back to from the flag
  • price trading above a continuation gap and above the 13,34,50 EMAs - look for a poosible decline to the 13 EMA
  • moving averages trading in a bullish fan
  • Short Ratio =  1.8
  • Percentage off recent high's = 5.79%
  • Daily Chart Pattern = Bull Flag price pause on light volume to form the counter trend flag at the 13 EMA
  • Trend = Bullish 
  • Direction = Pull back off 52 week highs to test the 13 EMA
  • all indicators and oscillators are in a very strong 123 bullish trend reversal , stochastics bull flagging
  • Trade Set up = Bull Flag play on a break out above the downtrend line
  • enter trade once TTEC takes out the previous day's  highs = $32.92 or higher
  • stop at a penny or 2 below the lows of previous day = $31.91 
  • Entry Triggered at  $32.92 on Tuesday 2/20/07

Please refer to the charts below to see how previous short term bull flag set ups played out.  Make sure to use the trading log provided for you to monitor your trades.  Copy and paste that in order to print it out.

PLEASE CHECK THE SHORT TERM PORTFOLIO AT THE END OF THE DAY TO TRAIL YOUR STOPS

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USNA--USANA Health Sciences, Inc. engages in the development and manufacture of nutritional and personal care products in the United States. It offers supplements and functional foods, including vitamins, minerals, antioxidants, and cofactors in chewable tablets under the ?USANA Nutritionals? product line. The company also offers a range of skin and personal care products, such as essences, daily cleansers, toners, daytime protective emulsions, eye nourishers, night renewals, serum intensives, rice bran polishers, nourishing conditioners, body nourishers, shower gels, and hand therapies under the ?Sense?beautiful science? product line. It also offers its products in Canada, Australia, New Zealand, Hong Kong, Japan, Taiwan, South Korea, Singapore, and the United Kingdom. The company was founded by Myron W. Wentz in 1992. USANA Health is headquartered in Salt Lake City, Utah.
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BPO--Brookfield Properties Corporation engages in the ownership, development, and management of premier commercial properties. Its commercial property portfolio is focused in seven North American cities, including New York, Boston, Washington, D.C., Toronto, Calgary, Denver, and Minneapolis. As of June 30, 2004, the company?s portfolio consisted of 46 properties and development sites, predominantly office buildings, comprising 46 million square feet of rentable area and development capacity. It also provides ancillary real estate service businesses, such as tenant service and amenities. In addition the company operates a development business that includes various low-cost commercial development sites in Toronto and Manhattan. Additionally, it owns a land development and housing operation. The company was incorporated in 1923. It was formerly known as Carena-Bancorp Holdings, Inc. and changed its name to Le Holding Carena-Bancorp Inc. in 1978. The company further changed its name to Carena-Bancorp, Inc. in 1985; to Carena Developments Limited in 1989; and to Brookfield Properties Corporation in 1996. Brookfield is headquartered in Toronto, Canada. The company operates as a subsidiary of Brookfield Asset Management Inc.
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TTEC--TeleTech Holdings, Inc., a global business process outsourcing company, provides a range of front-to-back office outsourced solutions, including customer management, transaction-based processing, and database marketing services. Its solutions comprise on-demand services, including infrastructure, software, and business intelligence, which the company delivers on a centralized and standardized delivery platform. The company?s Customer Management Services segment provides outsourced customer support and marketing services to various industries worldwide. Its Database Marketing and Consulting segment offers outsourced database management, direct marketing, and related customer acquisitions and retention services for automotive dealerships and manufacturers operating in North America. TeleTech offers its services in 150 languages to Global 1000 businesses and governments. The company was founded in 1982 and is headquartered in Englewood, Colorado.
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You can click on any of these charts after the voice update and see the past lessons on bull flags



GSTL BEFORE
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GSTL CURRENT
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ICE BEFORE
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ICE CURRENT
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