Bulkowski's Nationwide Financial Services (NFS) Trading Quiz

What chart patterns can you find? Look for the following (if you find others, great!): two diamond tops, two head-and-shoulders tops, and one broadening top.

Shown is the weekly chart.

Answer 1 (buy?): Buy because of the upward breakout. Diamond tops with upward breakouts in a bull market rank 39 out of 39 (last) for overall performance, with 1 being best. If you think of a diamond as a loose consolidation region, use caution when trading them. I've noticed that tight regions (tight flags or pennants where the price action is more horizontal instead of vertical, and packed together) perform better according to my research. The region from 3/23/05 to 4/6/05 at around 36 is tight (see prior chart). The May-June diamond is loose.

Answer 2 (Target?): Measure the height of the diamond from top to bottom and project it from the breakout price (where price pierces the diamond trendline).

Answer 3 (Stop?): Place the stop below the diamond bottom.

Here's my notebook entry for a trade in this stock. "7/6/05 I want to buy this stock because it's making a new high out of congestion. On the longer scale, it looks like a flat base breakout [rectangle top, really]. Even though the market is down today, the stock is up. Unfortunately, with such a strong up move, I fear a retrace is likely. That's what my gut says, so I'm going to wait for price to collapse before taking a position."

Price has closed above the two peaks in Feb and Dec 2004 (circled on this chart). That's a good sign if it can move higher. Question: Is the stock still a buy?

This is still on the weekly scale but price moved up, throwing back after July, but trending higher. I should have bought, but didn't... Notice how price tumbled after the diamond tops.