Bulkowski's Apogee Enterprise Trading Quiz

What chart patterns can you find? Look for the following: 2 pipe bottoms, pipe top, a horn top, symmetrical triangle, descending triangle, and a channel.

This chart is on the weekly scale.

A head-and-shoulders top in late 2001 (red) might form if price reaches the height of the left shoulder. It has a high of 15.70 so expect price to top out around 15, just in case it doesn't match the left shoulder high. As to overhead resistance zones, if you draw a horizontal line from the left shoulder to the right, you find patches of resistance. I show the lines bounding the region in green. The left shoulder block of price movement is clear but there's also a pause when price declines from the head downward. I would expect price to stall in that range. Thus, a head-and-shoulders top might be likely.

This chart is on the daily scale. What chart patterns can you find here? Hint. Look for the following chart patterns: diamond top, ascending triangle, descending triangle, broadening top.

This chart shows a descending triangle with an upward breakout.

Answer 1 (buy?): Buy. The breakout is upward, so trade with the trend. Notice, however, that price is going to hit overhead resistance. This might be a top trap.

Answer 2 (target?): You can use the measure rule for the triangle, which is the height added to the breakout price to get a target. This time, however, let's use support and resistance.

I see stiff overhead resistance in the solid block of price movement in January 2002 compounded by the July peak. I expect the stock to stall or even reverse at that price, maybe causing a throwback. This is the same as the head-and-shoulders we saw on the weekly scale. The left shoulder is in July and the head in December.

Answer 3 (stop?): Certainly the bottom of the triangle is a good place. Price already shows support there. I'd check placement for volatility to see how close it should be placed (see volatility stop).

The stock broke out upward from the triangle and climbed, touched the top of the resistance zone, and has now closed lower. I show the price trend in the inset. Do you see anything that might cause you to sell?

Question: Do you hold onto the stock, buy more, or sell, maybe even sell short?

The rising wedge looks almost like a channel except the lines aren't parallel as they are in a channel. Since the wedge has a downward breakout, that means sell, but is it the right decision?

The stock found support and formed the descending triangle before climbing to create an Eve & Eve double top. After that pattern confirmed (when price closed below the valley between the two highs), price continued lower, cutting itself in half (15.60 to 7.57). In this case, selling a long holding and shorting the stock would have been a good move. Holding on would have been a costly mistake.

Here's the weekly scale, and we guessed right about the head-and-shoulders.