Bulkowski's UNUM Provident (UNM) Quiz

Look for the following chart patterns (If you find others, great!): small head-and-shoulders bottom, descending triangle, ascending triangle, and a ascending broadening wedge.

The ascending triangle has broken out downward.

Question 1: Do you buy, short, or avoid trading this stock?

Question 2: If trading this one, what is the target price?

Question 3: If trading this one, what is the stop price?

Answer 1 (buy?): short the stock if you are crazy enough to want to risk it. If I owned this stock, I’d sell it.

Answer 2 (target?): Measure the height of the triangle and project it downward from the breakout price. That’s the high at 33 minus the low at 30.44 (pattern start) giving a height of 2.56. Subtract it from the breakout of 32.20 for a target of 29.64.

Answer 3 (stop?): The top of the triangle would be a good stop location, especially since it’s at the round number of 33. I’d place the stop at 33.07 or so. That would mean a potential loss of less than 4%.

The stock has moved up from the low in October.

Question: What would cause you to cover the short?

Price formed a triple bottom. By drawing a "neckline" along the price peaks in the pattern, a close above the red line signals an upward move and time to close out the short position.