Bulkowski's Timberland Co. (TBL) Quiz

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

The descending triangle I don't particularly like because of the uneven bottoms. The head-and-shoulders top has unequal shoulders. I like better symmetry between the shoulder highs. When deciding this, I compare the figure to a human bust. If the human looks like an alien, then it's likely not a head-and-shoulders. The ascending broadening wedge in January has touched the top trendline twice in the last week.

Question 1: Do you buy, short, or avoid trading this stock?

Question 2: If trading this one, what is the target price?

Question 3: If trading this one, what is the stop price?

Answer 1 (buy?): Buy. The chart shows a partial decline as the entry signal. When price touches the top trendline, drops down, and then reverses before coming close to or touching the bottom trendline, the chances are 65% that it correctly predicts an upward breakout (from an ascending broadening wedge). It might be enough to allow you to buy in early. Please note that the wedge pattern should be fully established before you look for partial rises or declines. By that, I mean the chart pattern should obey all of the identification guidelines for it. See my Encyclopedia of Chart Patterns, 3rd edition (#ad) book for details.

Answer 2 (target?): Note: For this item, the prior slide may be more useful than this one. Use the height of the pattern projected upward from the breakout price to get a price target. High is at 33.94, low at 31.17 for a height of 2.77. Added to the breakout price of 33.94 (pattern high), we get a target of 36.71. Since price meets the target 61% of the time, multiply the height by 61% and then project upward. Using this method we get a closer target of 35.62. What about overhead resistance? There is none except round number resistance at 35, the closest round number. The three highs near 34 may also put up a fight as price tries to push through.

Answer 3 (stop?): 2x volatility is $1.00, so place a stop no closer than 32.43 or 3.5% below the close.

What patterns can you find (after the wedge)? What would lead you to buy the stock at the current price? Where is your stop?

The descending triangle has an upward breakout, signaling a continued move up. Price threw back to the triangle boundary and that's not unusual (happens 60% of the time). The triangle bottom would be a good stop location and the next chart shows why. Note how price found support at the 35 round number (green line). Price also easily passed the 36.71 target, too. A stop below the descending triangle would have saved you a ton of money.

Here's the final chart.