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A New Chart Pattern to Watch For

I don't know if there is a name for this pattern, but I've been seeing it a lot lately. I guess we can call it failed-breakout-range-base-then-rip-higher. It's sort of the cousin of the failed breakdown patterns I've been seeing recently, but the supply/demand structure is different.

Essentially, the stock or etf goes higher on momentum, finds sellers, and we see a quick reversal. Then the stock bases out for a few weeks to a month, and forms a channel. It then breaks out and we see a retest of those recent momentum highs. It has been a reliable pattern recently.

Take for example CTXS:

So here are the steps:

  1. The stock breaks out into fresh highs above 36. The momentum takes it to about 43.50
  2. It finds sellers at that price and makes a quick round trip back to previous resistance.
  3. The stock then finds a range between about 39.50 and 37.50 for a month. This is the key-- I think that shorts get more interested and there is a very clear stop loss above 40.
  4. The stock breaks 40 and the fresh stops are run and we see new momentum take us to retest the levels at 43.50

Watch for this pattern, especially if we get any strong pullback in momentum-based names.

This pattern is developing with FDX but it hasn't broken out, I'll be watching to see if we can retest those levels:

If we see a breakout above 85 and the 20 DMA, we should see a gap fill and a potential run to 93.

by Steven Place

Steven Place is the founder and head trader at investingwithoptions.com/