By: Zev Spiro
The major market indices have been in a volatile range for the past two weeks. Consolidation patterns are present on the daily charts which suggest continuation of the previous uptrend. The volume patterns, on the other hand, are implying potential bearish reversals. Both the SPDR S&P 500 Trust (SPY) and iShares Russell 2000 Index Fund (IWM) are close to a range resolution, via a pattern break, since the boundary lines of their consolidation patterns are converging and the range is narrowing. Waiting for a confirmed trigger, in either direction, is key. Below are charts outlining the consolidation patterns in SPY and IWM, followed by a short idea in Venoco Inc. (VQ).
Venoco Inc. (VQ): An aggressive sell-off began at the beginning of February that was halted by a cluster of support. The support was composed of the primary bullish support line and the 200-Day Simple Moving Average. Currently, a bear flag pattern is forming directly above these support levels, adding weight to the cluster’s evidence. A break below the cluster would trigger the pattern and be extremely significant, leading to lower prices in the near future. Trigger: Daily close below the trend line, moving average and lower boundary line of the flag, currently around $17.90. Target: $14.50 is the minimum expected objective, measured by the pattern. Protective Stops: can be triggered on a daily close above $19.
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*DISCLOSURE: Long SPY; Short VQ
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