Welcome to Bravechart. Your in-depth article on chart analysis from a Scotsman stationed in the Outback.
As traders, we use technincal analysis as a reliable method for speculating on future price direction of both equities (shares) and indexes. Technical Anyalysis in simple terms is the study of historic price movements in a chart in search of patterns or consistantly traded support and resistance levels. Today we are looking at a specific chart pattern called a Pennant.
Appearance: A pennant pattern comprises of:
- A strong long-term trend line, either bullish or bearish.
- A counter trend forming towards the long-term trend line coming to form a triangle.
- A breakout from the point of the triangle in any direction.
Pennant Pattern: This pattern is one of the most reliable patterns. You can see that when the stock comes back to the long-term trend line, it will break out of the pennant and then usually continue in the direction of the breakout for a while.
Important Note: To time this pattern correctly usually takes a strong understanding of the next direction. If the pennant forms on an up-trending stock, but you believe from a fundamental point of view that it is away to fall, you could use this technique to your advantage as the stock tends to follow for a few days after the breakout.
Example: Scentre Group
Scentre Group been whipping around for the last 9 months, with share price in the last 2 months turning bearish and starting to fall lower. With the price recently (back in May) falling to the yearly low point of the stock, the share price of SCG has started to form the pennant pattern we can see below. With the two trend lines now converging towards each other, we will likely see a breakout very soon, and then a continuation of the breakout. With the long-term trend being bearish, we will likely see a further continuation of that. However, a push back towards $3.90 – $4 could quite easily be seen also. With the pennant pattern, we will have to keep an eye on the stock and determine the new trend direction by the direction of the breakout.