All About Bearish Pennants
All About Bearish Pennants
All About Bearish Pennants
My observation of a Bearish pennant is technically confirmed when you assess the following: A bearish pennant is consistent with an incisive, strong volume reduction on the basis of negative fundamental occurrence and then a number of sideways movements to a narrowing price with much weaker volume. A second sharp decline to new lows on solid volume follows.
Why Does It Happen?
Bearish pennants are closely related to bear flags with the major difference being that after the flag pole; the consolidation is triangular (pennant in shape). The flag in contrast is parallel in shape (flag shaped). Pennants, much like flags are a favorite amongst technical traders because they generally conduct large and assertive price movements. Both pennants and flags evolve at the midpoint of a decisive move.
The outset subdivision of the bearish crown pattern is often described as a flagpole or mast. Throughout this period the stock price deteriorates and falls to a reaction low (a) - usually after some negative fundamental occasion. Quite often this will be a downgrade in guidance, poor production reports or negative earning results. The reaction causes some panic and disappointment; the traders quickly show their dismay and unload their positions, the stock dives rapidly lower. Experienced traders familiar with the stock might have shorted it, other traders are long and as the cost falls they have to cover their positions pushing the cost even lower. Speculators buy the stock in the belief of a quick turn around, so there could be willing buyers but they usually lose money in these conditions.
It is at this stage the next phase or flag section unfolds. Due to the influx of information and the negative market sentiment most of the stock that was purchased by speculators is readily absorbed by nervous sellers but as it unfolds over time the selling pressure subsides and the stock slowly starts to rise with limited volume. The opportunists push the share price higher, although with diluted volume the rally fades and the stock reaches a short term top. (b).
Amid widespread bearish opinion the stock price worsening threatens to lead the stock lower to new lows. As the losses start, the volume is weak and the share price is supported by bargain hunters. As an outcome, the prices steady and a second short condition bottom is established. The second bottom is at somewhat higher levels.
Encouraged by the situation, the stock failed to make a new low. The speculators are preying on the stock and purchasing into the market. At this time the stock rallies but fails to reach established high (b) but the volume is exhausted and the rally soon dissipates (d). Over the next few sessions the stock trades in a narrow range lower as volume declines rapidly this displays the bearish pennant pattern, before long the stock descends towards the established lows at (c).
During the next few sessions the stock breaks through the supporting low, this causes a breakout to the downside (e). A number of analysts report negatively to the market, usually about earnings over the next trading period and a new stage lower commences. The next trading session opens with further losses and the stock trades substantially lower in the coming weeks.
Technological Signals
1. Sharp Move: for a continuation pattern to be considered, it requires supporting evidence of a prior trend. These pennants necessitate a sharp advance or decline on strong volume. These movements can involve GAPS and are based on solid volume. While this is generally the first leg of a significant ascent or descent, it is simply a pause.
2. Flagpole: The flagpole is the distance between the first resistance and the support break until the high or low of the pennant. The acute advance or decline that forms the flagpole will generally break a trend line or hold or else a resistance level. A line increasing up to the high of the pennant creates the flagpole.
3. Pennant: A pennon is a small harmonious triangle that commences broadly and tapers as the figure evolves, lots alike a funnel. The slope is unbiased and frequently does not have identifiable reaction highs and lows from which to draw trend lines. The share price should be contained between two attracting trend lines.
4. Duration: Flags are only short term patterns and they generally last about 1 to 12 weeks.
5. Break: on a bearish pennon, a break of the sustain level indicates that the previous falls have re-commenced.
6. Volume: Volume must generally be solid during an advance or descent in which it forms a flagpole. The strong volume substantiates its position for a sharp and reactive move that forms the flagpole. The growth in volume at the support level provides the confidence in the formation and the chances of the follow on.
7. Targets: the flagpole length is able to be determined by the support or resistivity break of the flag to appraise the advance or the decline.
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