http://www.zacks.com/screening_2/custom/
Last Close >= “1″
Market Cap >= “50″
% Price Change (12 Weeks) >= “80″
There were only I think 18 results ad many of them were stocks that had already merged or received a buyout offer. Some of the merger results may provide an arbitrage oportunity like we heard about in Buffettology, but I ignored those and then I enter them in finviz and identify which actually resemble a high and tight flag and eliminated the others leaving the following.
http://finviz.com/screener.ashx?v=340&t=ARNA,AHD,APL,KRO,IDT,JKS,INTX
ARNA, AHD, KRO,(APL), (IDT)
(JKS,INTX (wait for consolidation)
Depending how you draw the trendling you could say APL has recently broke out from the downtrend, but not the high point of the pattern but is very early in the move and is not yet a clear cut breakout. Also, APL misses the qualification of not ever being 20% down from it’s highs, but it only missed it by a few cents and only very very briefly on the daily charts so I don’t think there’s reason to be too picky.
IDT looks a little iregular and doesn’t really have a very definative downtrend so perhaps waiting until it breaks new highs would be a more prudent breakout point, unless it develops a more clear trend.
Also: JKS has already shown a high tight flag breakout on the daily chart and has since been overextended from it’s breakout point, but could easily make another consolidation pattern. INTX has moved up from under $4 to over $9 without any consolidation. So although they have not shown the consolidation needed to begin to form a high tight flag there are very few stocks that move high enough within 8 weeks, and they have to consolidate at some point so they are worth watching.
Stay away from biotech unless you can buy puts for cheap protection against large losses.
Here’s what they look like because pictures are worth 1000 words a pop.
I haven’t looked at the earnings or IBD rating to see if these are worth holding for a full 8 weeks if they are up past their target, but the data from encyclopedia of chart patterns indicates that this chart has a strong enough history where the data doesn’t matter. The chart indicates Some institution(s) is/are buying this stock and willing to pay whatever they can get to accumulate it. Possibly the company is in the process of taking itself private or a buyout is occuring, but the pause represents a “refueling”. The numbers indicate that stocks with these chart patterns defy the markets and gravity and continue to melt higher.
Maybe these will stay stuck in consolidation for awhile, but I think they’re worth trading. I’m thinking consider a small position size with a tight stop on all of them and let their performancce determine which one’s worth adding onto at the second buy point.
2 year chart on ticker symbol TEN shows example of the power of a high tight flag.
From 67 cents it shot up to $7.65 within a very short period of time, then broke the $7.65 after consolidation. It continued consolidating after a big move higher and from the peak of that consolion high it was still up over 100% in the 8 weeks prior resulting in another high tight flag breakout at around $11. Then it shot up to $18.15 before consolidating for quite some time and breaking out. The next consolidation happened shortly after and the stock retested it’s last breakout point. This time the stock no longer qualified as a high tight flag as the consolidation took too long and it was up from 11.82 to 21.23 which is 80% and not quite 100% in 8 weeks… However, it’s still made a cup and handle breakout as the first flag was the cup and the second was the handle. It then shot up to 27.50 and formed a double bottom. It then made a bull flag after that double bottom before the bull flag failed, but selling from it’s high of 29.57 and you would have 3.87 times your money from 7.65. The stock pulled back more than 20% after it’s first high so it didn’t qualify in it’s first breakout but if you counted that, it first broke from a variation of the high tight flag at 2.59.
Info copied from Encyclopedia of Chart Patterns
Flags High And Tight
RESULTS SNAPSHOT
Upward Breakouts
Appearance A consolidation region of several days to
several weeks long after a stock doubles in
price
Reversal or continuation Short-term bullish continuation
Bull Market Bear Market
Performance rank 1 out of 23 1 out of 19
Break-even failure rate 0% 0%
Average rise 69% 42%
Change after trend ends –36% –35%
Volume trend Downward Downward
Throwbacks 54% 65%
Percentage meeting price target 90% 91%
Surprising findings The pattern sports a huge average rise with
small failures. Throwbacks hurt
performance. Short or narrow patterns
perform better than tall or wide ones. The
price trend after the flag is about half as far
as the trend leading to the flag. Patterns with
a falling volume trend perform well.
See also Flags; Pennants
Trading Tactics
Table 22.8 shows trading tactics for HTFs.
Measure rule. Use the measure rule to predict a target price. To calculate
the price target, find where the trend starts and measure the price change from
the low at the start to the HTF high (the highest high in the pattern). Divide the
result in half and add it to the HTF’s low price. The result is the target that
price reaches 90% of the time. Look for price to stall once it nears the target.
To find the trend start, see the Glossary and Methodology for details.
Buy after breakout. Since the price rise in the first week is the largest
one-week change you are likely to see, place a stop order to buy the stock just
above the HTF trend-line boundary. If the HTF has an irregular shape, use
the top of the pattern as the buy point and place the buy stop there.
If price closes below the flag pattern, sell your position immediately
because price is going down. Reversals do happen, so be on guard for one.
Once you have a position in the stock, raise your stop to just below the prior
minor low when price makes a new high. Keep raising the stop as prices rise.
Eventually, this method will take you out when the trend changes or during a
severe retrace.
Table 22.8
Trading Tactics
Trading Tactic Explanation
Measure rule Measure the rise leading to the flag and project half of it
upward, using the flag low price.
Buy after breakout If prices break out of the flag portion, buy the stock. If you
cannot tell if a breakout has occurred, wait for price to rise
above the highest high in the flag.
Source: Encyclopedia of Chart Patterns by Bulkowski
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I am working with “lol” and “johnny” and developing a flag trading system. In it, I believe we will buy twice. Once at the two breakouts (first a breakout above the downtrendline, second above the new high.)
However, there is another potential way to play it. That’s to make 3 purchases. That’s once, at support of the downtrending flag, near oversold levels on a short term basis as the stock approaches being down 20% from it’s highs. You would buy with a stops set 1-3% below the 20% point and buy as close to that 20% as possible, WHEN the markets are also oversold. You can do this to all of them. Then you buy at breakout, and then buy again at 2nd breakout.
The reason this is effective is because down over 20% is a break of the potential pattern and it allows you to make a purchase that has a ton of upside if it does breakout. You get to move your stop up for all your purchases with each buy. So if you break the upside of resistance on the downtrendline, you add more and set a stop for those purchases above 8% from your purchase price (or 1-3% below the 20% mark, whichever is a tighter stop). You also move your stop at the 20% below highs up to that point, then the third buy on the 2nd breakout to new highs, and you move the stop up again. The main key is that the stock will be bought on the way up so that you add on to the stocks that are winners while they are still early in their move, and you do not add to those that aren’t going to move upwards. You also cut your losses short very quickly, and lock in more and more of your gain as your stocks advance while still giving your stock room to run.
I have a few issues with buying near the lows, but There is stil upside. The first is accuracy of it breaking out and moving is unknown, probability of success is lower. It doesn’t have to be that good because your stop is tighter, and even just moving to new highs means a 25% increase from being down 20% from the highs. A big issue will occur if you don’t have enough money to buy all of them. An issue may occur is fees for those with smaller account values. Plus it’s less proven buying at the lows and it’s tough to identify when conditions are right.
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