Hawk’s Picks – Memorial Day Special
It’s Memorial Day weekend, and in honor of the holiday, flags are fluttering in the breeze all over town. Accordingly, I thought this would be an appropriate time to look at one of our favorite trading patterns, Bull Flags and Bear Flags.
After a strong trending move, prices frequently pause to take a breath. Prices consolidate as traders gather their forces for the next assault up or down. During this process the price charts often generate a brisk pullback move against the prevailing trend direction that shakes out the weak trend followers. Such a pullback move often resembles the rectangular shape of a drooping flag. In an uptrend, the previous upward thrust line would represent the flagpole, while the subsequent pullback swing would be the flag. This is called a bull flag. In a downtrend, a downward thrust line would represent the flagpole, while the subsequent upward pullback would be the flag. This is called a bear flag.
Once you have identified a flag pattern on your chart, a breakout through the top of the flag on high volume signals a continuation of the uptrend. You can project a price target for the trend continuation move after a flag pattern by measuring the length of the flagpole. In a bull flag pattern, if you add that length to the bottom right corner of the flag you can usually predict the price range where the next price swing is likely to end and you can use that as a profit target to exit your position.
Conversely, in a bear flag pattern you can subtract the flagpole length from the upper right corner of the flag or pennant to predict how far down the downtrend is likely to extend.
So, through the laborious efforts of technical analysis made so much easier by the Arps Scan Sentry tools which include the ability to scan for bull and bear flag pattern setups and plot these patterns and their breakout and target levels on a chart, we have come up with the following ideas to look at for entry possibilities for positions this week. Remember, although symbol selection and timing is important, sound money management is the most important key to long term success in these financial markets.
Here are the picks for the week after Memorial Day, all of which have exhibited recent flag pattern breakouts…
Symbol Breakout Price Current Price Target Price Suggested Stop Price
TLT 96.19 96.47 100.62 95.29
ALB 69.85 70.55 81.35 67.65
PM 70.67 70.52 74.37 68.46
OPEN 90.16 88.14 66.40 94.44
ISRG 346.03 344.26 326.89 350.55
CAAS 7.72 7.65 5.62 8.73
Jan Arps’ Traders’ Toolbox is not an investment advisory service nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities customers should buy or sell for themselves. Examples presented on this site are for educational purposes only. It should not be assumed that the methods, techniques, or indicators presented in these examples will be profitable or that they will not result in losses. There is a high degree of risk in trading. Readers using this information are solely responsible for their actions and trade at their own risk. Readers should always check with their licensed financial advisor .