| Continuation Diamond Bullish Pattern |
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| Wednesday, February 15, 2006 |
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Afternoon Update - AAPL, SNDK, CEPH, & PPH
Apple Computer, Inc. (AAPL) - Daily Chart
The daily chart of AAPL shows that it has just completed a wave 3 to 4 pullback. Today it has broken out of it's down trend channel and is up 1.97% at $68.98. I believe it will rally to the $80.00 area. The Aroon is still in a bearish trend reversal, but the PPO and stochastics are starting to turn up.
SanDisk Corp. (SNDK)- Daily Chart
The daily chart shows that SNDK has been in a wave 3 to 4 correction since the beginning of this year. As you can see on the daily chart, SNDK remains in it's ABC corrective channel and is in a continuation wedge pattern. The Aroon, Williams%. and PPO are still bearish, but the RSI and Stochastics have bottomed and are beginning to reverse upwards.
Cephalon, Inc. (CEPH) -Daily chart
On the daily chart, you can see that CEPH is forming an ascending triangle. It has recently pulled back to fill the gap, but it remains above the uptrend line. Although the action in this stock has created some whipsaw, the Aroon indicator is now crossing over and stochastics are diverging. Price is in the buy zone now. Furthermore, on the weekly chart , CEPH is in a Slim Jim pattern. New all time highs will be above $83.00 where there is no overhead resistance. Today CEPH is up 2.68% at $73.67.
The Pharmaceutical Holders ETF (PPH)- Monthly chart
There is a sneaky underlying bid coming into the PPH. This month the PPH is up 1.38% at $71.58. I have suggested this ETF so that you can have an equity that lets you sleep at night. Ever since I have suggested the PPH, it has had a nice slow move up. In addition, it gives you exposure to some Dow stocks. On the monthly chart, the PPH has broken it's downtrend line going back to the year 2000. The PPH continues to be in a bearish trend reversal on the Aroon indicator. Nevertheless, the PPO is showing bullish divergence and is starting to turn up, as are stochastics. I would start looking towards this sector because there may some rotation going on as investors become more risk adverse and more defensive. I would look at Pfizer (PFE) and some large cap pharma's. Keep an eye on this sector because eventually there will be rotation out of commodities and into utilities and pharma's.
Continuation Diamond (Bullish) Classic Pattern
Implication
A Continuation Diamond (Bullish) is considered a bullish signal, indicating that the current uptrend may continue.
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Description
Diamond patterns usually form over several months in very active markets. Volume will remain high during the formation of this pattern. The Continuation Diamond (Bullish) pattern forms because prices create higher highs and lower lows in a broadening pattern. Then the trading range gradually narrows after the highs peak and the lows start trending upward. The technical event occurs when prices break upward out of the diamond formation to continue the prior uptrend.
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Trading Considerations
Duration of Pattern
Consider the duration of the pattern and its relationship to your trading time horizons. The duration of the pattern is considered to be an indicator of the duration of the influence of this pattern. The longer the pattern the longer it will take for the price to move to its target. The shorter the pattern the sooner the price move. If you are considering a short-term trading opportunity, look for a pattern with a short duration. If you are considering a longer-term trading opportunity, look for a pattern with a longer duration.
Target Price
The target price provides an important indication about the potential price move that this pattern indicates. Consider whether the target price for this pattern is sufficient to provide adequate returns after your costs (such as commissions) have been taken into account. A good rule of thumb is that the target price must indicate a potential return of greater than 5% before a pattern should be considered useful. However you must consider the current price and the volume of shares you intend to trade. Also, check that the target price has not already been achieved.
Inbound Trend
The inbound trend is an important characteristic of the pattern. A shallow inbound trend may indicate a period of consolidation before the price move indicated by the pattern begins. Look for an inbound trend that is longer than the duration of the pattern. A good rule of thumb is that the inbound trend should be at least 2 times the duration of the pattern.
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Criteria that Supports
Support and Resistance
Support can be found at the turning point of the lows and resistance at the top peak of the Diamond.
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Criteria that Refutes
No Volume
A lack of a volume throughout the pattern is an indication that this pattern may not be reliable.
Short Inbound Trend
An inbound trend that is significantly shorter than the pattern duration is an indication that this pattern should be considered less reliable.
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