Bulkowski's Alaska Air 2 Trading Quiz

What chart patterns can you find? Look for the following: symmetrical triangle, (small) broadening top, inverted and descending scallop, descending scallop, Adam & Adam double top, Eve & Eve double bottom, head-and shoulders top, Big W.

The red Qtr symbol in the upper right of the chart shows the release of quarterly earnings. The red circle identifies the price bar on the release date. It's difficult to see, but price broke out downward from the earnings surprise.

The scaling is different so it may take a bit to adjust to the new chart, but the red vertical line shows (to the left) where the last chart ended and the new one begins.

Answer 1 (buy?): The downward breakout suggested a short sale. However, price recovered during the next two price bars (visible on the prior chart), so it's best not to short. Price is near the yearly high, so you don't want to short a stock making new highs but stick to one making new lows. I see no other reason to own this stock or trade it.

Answers 2 (target?), 3 (stop?): Don't trade this one, so the answer is moot.

Price continued moving up so a short would have cost you money, at least on paper. The awful-looking head-and-shoulders top (LS, H, RS) that formed was a much better indicator of price turning lower. When it confirmed then that was the time to short the stock. With the cost of jet fuel what it is (back then), that's not a bad bet providing you covered near the October low.