Bulkowski's Southwest Airlines (LUV) Trading Quiz

What chart patterns can you find? Look for the following (if you find others, great!): Adam & Adam double bottom, head-and-shoulders top, large descending triangle, symmetrical triangle.

Price dropped below the large descending triangle in September 2005. When price climbed above the top trendline, it was a buy signal.

Answer 1 (buy?): Buy. This type of fake downward breakout could signal the start of a strong uptrend.

Answer 2 (target?): You could use the height of the large triangle to compute the target but that would give you a huge and probably unrealistic estimate. Instead, I would use overhead resistance from the weekly chart (not shown). From the prior daily chart, it looks like 15.50 to 16.25 will cause problems for the stock. That's the Nov 2004 to January sideways move. You can see a part of it on the left of this chart.

Answer 3 (stop?): From the September low, because price has climbed far to pierce the blue trendline, using the bottom of the triangle would mean a large loss. 2x volatility is just 68 cents, suggesting a stop no closer than 13.80 would work well. That corresponds to the congestion region I have circled in red. That's where I'd place my stop, perhaps just below this.

As you can see, price continued to move up after the throwback attempt. It exceeded the target price and reached a high of 17.90.