Blog Ben Sturgill

Watchlist Stock Flag Pattern Breakout

Chart patterns are everywhere.

But if you don’t know what to look for, or how to use them…not only will they not help you, they could hurt you.

Today I’m going to break down a flag pattern breakout in TSOI from my member’s watchlist last week.

But I’m not going to stop there…

I’m also going to take a look at ZNGA’s after-earnings gap down, taking a dive into the consolidation breakout pattern and gap fill all in one chart.

Watchlist Flag Pattern Breakout in TSOI

On Thursday I added TSOI to my watchlist with the break higher out of a flag pattern as seen in the chart below.

After trending down, the stock consolidated for the month before making a significant move, doubling in price on August 5.

That move created the flagpole, after which the price eased back down but held support at .06 creating the flag portion of the pattern.

This led to the setup that put the stock on my watchlist two days ago.

As you can see TSOI broke above the flag in a move higher last Thursday…and then Friday it continued up finding the resistance level between the previous chart highs of .11 and .12, marked in the blue square on the chart.

Putting it all together:

Notice the consolidation before the flagpole was formed. This gave the stock an accumulation period. A calm before the storm.

After a big spike in volume to form the flagpole, you’ll notice the volume trailed off while forming the flag portion. This is exactly what I want to see as the stock takes a breather.

And when the price breaks above the flag, I want to see volume increase (bottom of chart above) as a sign of confirmation for the move.

And lastly…I tend to look for resistance levels to target. In this case, the previous highs in the .11-.12 range which the stock hit within 2-3 days of the breakout.

Another way to find a target on a flag pattern breakout is to take the range of the flagpole and add it to the breakout point, which just so happens to put the target in the same area as the previous chart highs.

There really is something to important levels of support and resistance. The more I can line up the more I like a level.

Zynga Inc. (ZNGA)

Zynga (ZNGA) reported earnings after the market closed on August 5.

And while the company reported its best ever revenue for the second quarter and posted a profit vs. an expected loss, investors were more concerned about the CEO’s comments noting that people were playing games less frequently as economies opened back up, lowering expectations for next quarter.

And on that note, the stock gapped down into the upper 7’s, prices not seen since last year. But with positive free cash flow and a low price-to-sales ratio compared to its peers, the stock found support there.

TPST “W” Pattern Breakout

“A chart is a chart is a chart.” – Ben Sturgill.

It doesn’t matter if I am charting a penny stock or AMZN, I still look for the same things. For instance, last Friday I spied a classic “W” pattern setup in Tempest Therapeutics Inc. (TPST), and I looked to play the continuation of the “W” pattern breakout and strong volume.

At nearly $20 per share, TPST was by no means my usual penny stock play. But that didn’t keep me from making the trade.

If there’s one thing I know, it’s chart patterns…and chart patterns don’t discriminate based on stock price.

Technical analysis is the same regardless of the price, or asset class for that matter. The same principles I teach can be used for stocks of all price levels, as well as currencies, commodities, and so on.

So when I came upon TPST breaking out of a classic “W” pattern, I didn’t worry about the price tag, I simply lasered in on the technicals and trade potential.

What is a “W” pattern?

If you’ve never heard of the “W” pattern, maybe you are more familiar with the term double bottom instead.

The “W” is just another term used for the double bottom.

The reason for this is the pattern itself. When formed, the stock creates a visual “W” on the chart (as you can see on the chart below).

But first the basics…

The stock makes a leg down, then tries to rally but hits resistance and ends up pulling back to form a second down leg (double bottom).

The stock then rebounds one more time and is finally able to punch through the first leg up and move higher, creating the “W” visual on the chart.

Great to be with Colleen Caskey and so many wonderful Athletes Intervarsity staff at the 2018 MOVE conference.