Bulkowski's Verisign (VRSN) Quiz

Look for the following chart patterns (If you find others, great!): Unconfirmed high and tight flag, head-and-shoulders top, 3 double bottoms (one is unconfirmed), potential Big W.

Before I show you the answers to the patterns, look at this chart (different company than the prior one).

I’ve been looking for Big W chart patterns because they represent a better profit opportunity than a regular double bottom. This is an example of what I like to see in a Big W – a flat price run followed by the Big W and then a recovery when the Big W completes. See the pothole pattern for more information on this type of setup.

With this Big W, I don’t like the run up to the head-and-shoulders top. I much prefer the flat run then a Big W. The decline from the head-and-shoulders is a nice straight-line run, which is good.

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?): It’s too soon to buy, I think. Wait for the pattern to confirm unless you are an aggressive trader.

Answer 2 (target?): Near the old high (site of head-and-shoulders top), say 33-34.

Answer 3 (stop?): If you wait for confirmation of the double bottom, then a stop below the horizontal consolidation region shown by the red line in the above chart I think would work well. If you were to buy now, then place a stop below the lower of the two bottoms.

The above chart shows what happened. Price gapped higher from the Adam bottom (April 2005) but did not confirm the pattern until late May. I show confirmation as a close above the green line. For Big Ws, if you buy near the second bottom low, you can ride price up to the confirmation point (the high between the two bottoms, B) and cash out there. In this example, that would have been less than a week after the Adam bottom (point A). Price often stalls there at the confirmation line, but not always, before continuing higher. That strategy would have worked well in this case.

Question: Price has moved down for 3 days. Do you buy, short, or avoid trading this stock?

Price confirmed an Eve & Eve double top when it closed below the confirmation line formed as the low between the two tops (the red line). Price pulled back as it so often does before continuing down. The correct choice was to sell immediately.