Bulkowski's Intertape Polymer (ITP) Trading Quiz

What chart patterns can you find? Look for the following (if you find others, great!): 2 head-and-shoulders bottoms, rising wedge, three rising valleys, and a dead-cat bounce.

The rising wedge has an upward breakout, confirmed when price closes above the top trendline.

Answer 1 (buy?): I don't like wedges and the upward breakout is unusual. It's a buy signal though.

Answer 2 (target?): Take the height of the wedge, multiply it by 63% (because that's how often this measure rule works) and add it to the breakout price. The top of the wedge is at 10.43, low at 9.62 for a height of 81 cents. Multiply by 63% to get 51 cents and add it to the breakout price of 10.43 to get 10.94.

Answer 3: With low priced stocks, they are more volatile and it's more difficult to place a stop. I would probably use a volatility stop on this one. That places it at 9.75 or 6.8% below the current close. A volatility stop is computed by finding the daily high-low range over the last month and averaging the values, multiplying by 2 and subtracting the result from the current low. It's a way to prevent being stopped out by normal price action.

The stock plummeted in a dead-cat bounce on a lower sales outlook. If you trade stocks long enough, you will probably run across a dead cat bounce. Even if you placed a stop below the bottom of the chart pattern, you would have lost more than that as price opened lower. On 7/28, the stock closed at 11.10 and it opened the following day at 9.25 before closing at 7.95, a close-to-close decline of 28%.