Bulkowski's Surmodics 2 (SRDX) Trading Quiz

What chart patterns can you find? Look for the following (if you find others, great!): 2 inverted and ascending scallops, head-and-shoulders top, ascending broadening wedge, ascending triangle, symmetrical triangle, double top.

The stock has NOT broken out of the broadening wedge in April.

Question: If we owned the stock, why should we be worried?

Answer: The stock might breakout downward. There's a 52% chance of that happening.

Here's the next chart. Price broke out upward! What a surprise. Since then price has eased lower.

Question: Is it time to sell or buy more? Maybe even short? Justify your answer.

Price formed a symmetrical triangle (red lines). Even if you didn't notice the triangle, peak B is below A. When price fails to exceed its old high, that's a signal of a trend change (a retest of the high, it's called). I've sold stocks because of it and save myself a bunch of money by getting out early. Is that the case here? ...Wait.

Notice how point C fails to touch the top trendline. Usually you see this behavior in broadening patterns and it's called a partial rise. A partial rise predicts a downward breakout, and that's what's happened here. When price closed below the lower trendline boundary, that was the sell signal. Should you take it?

Before you sell your position, how far will price drop? Look for underlying support zones. I show my guess in green. I circled the important points that caused me to locate the lines where I did. For example, the top trendline has a circle in June. That knot of congestion repelled price in August (not circled) and the two valleys in October (circled) show support there. Since price didn't pause in January at that level, it may mean the support area is weak enough now that it won't stop a tumble. For that reason, the second green line may give way easily, too. Thus, you're looking at a possible decline to 24-25, which is quite far from 31, where it's at now. Thus, you should sell a long position based on this analysis.

As the chart shows, price tumbled but took its time at first. Oddly, the top green support zone boosted prices for a while, much to my surprise. The second green line also supported price, but briefly. The last line was a dud when price shot through it in late October. It did provide overhead resistance in January, though.