Bulkowski's Stancorp Financial (SFG) Trading Quiz

What chart patterns can you find? Look for the following (if you find others, great!): rectangle top, ascending broadening wedge, broadening top or bottom (hard to tell), broadening formation right-angled and ascending, descending triangle, complex head-and-shoulders top.

RABFA is a right-angled broadening formation, ascending. Many of these chart patterns (on this chart) are not easy to spot except for the descending triangle. The breakout is downward from it.

Answer 1 (buy?): If I own the stock, I'd sell it, regardless if support is nearby. Price often pierces a support zone and continues tumbling. If you want to short the stock, then look for underlying support to see how far price is likely to go before taking a position.

Answer 2 (target?): Assume a short sale. Compute the height of the triangle from highest high to the horizontal trendline and subtract the result from the value of the horizontal trendline to get a target. Price hits the target 50% of the time, so be conservative in your target. Look for nearby support where price might stall or reverse. Pullbacks also occur 58% of the time (that's a hint). I drew green lines starting from the price peaks to the left of the chart pattern and red lines from the valleys. Where a nest of lines appears, it might indicate support.

Answer 3 (Stop?): A volatility stop is calculated to be 33.14, or 3.9% above the current high based on 2x volatility of 72 cents. That would place the stop just above the congestion area circled in red on the chart. That's what I would use.

Price was scared off by underlying support and moved to the other side of the chart pattern. I can't tell if the stock closed above the top trendline.

Let's assume your short position has been stopped out.

Question: Should you buy the stock now?

Price dropped, which is a surprise, but a properly placed stop would keep losses to a minimum. Price did recover and take off, but not in a straight-line run.