Bulkowski's Vertex Pharmaceutical Trading Quiz

What chart patterns can you find? Look for the following: Dead-cat bounce, broadening top, diamond bottom, descending triangle, triple bottom (unconfirmed), double bottom.

Price has broken out upward from the large descending triangle.

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 because of the upward breakout of the descending triangle. Answer 2, 3: See the next page.

This is the weekly chart. I show the rounding turn in the blue line and overhead resistance in red.

Here's my notebook entry for the trade. "Date: 10/7/04, filled at: 11.25. Stop: 9.57, below the lower broadening top boundary. That's a large decline of 15%. Upside target: I see price stalling at 12.25 but pushing through. This could be at the bottom of a very long rounding turn, with top at 96. See monthly/weekly scale. 16.50 looks like a good upside target. That is the site of an old high in June, August and in prior years (fall '99). Future S&P direction (guess): down as it's at top of descending broadening wedge. It could breakout upward, though. Buy reason: triple bottom, pipe bottom, and broadening top all signal a buy. It's been a year since the dead-cat bounce and with this flat base, the stock could move up. The bad news is that I am late getting in...again."

This is a screen shot of the stock on the daily scale and the S&P 500 on the lower half. Notice how the index was climbing, forming a large descending broadening wedge or maybe a channel. I predicted the index would drop. If so, why was I buying?

This shows that I placed the stop below September's minor low but I placed the stop on the day I bought. As I mentioned in my notebook, the stop is 15% away from the buy price but as you can see, it worked well because anything much closer and I would have been stopped out. That's the price you pay when you trade stocks below $15 or so (very volatile).

Question. On the last day shown, I did something important. What was it?

Answer: "12/16/04: Stop raised to 10.23."

This chart shows the day and price that I placed the stop. You can also see that price hit the stop. Here's my notebook entry for the sale.

Date: 1/3/2005, filled at: 10.232. Sell reason: Hit stop."

How timely was the sale?

I show this on the weekly scale. After I sold, price moved up to A at a price of 11.99 and then tumbled to a low of 8.61 at B. After that, price recovered, making a straight-line run upward.