The Predictable Market Hypothesis

[Charts used describe movement in MTBC, TLGT, and ZSAN, although each of these particular patterns already played out.]

Ever since I was a kid looking at my first parabola (ya I remember my first parabola, don’t you?!), I remember thinking, “oh, so everything can be described like this!” It wasnt that exact moment that I realized how lucrative this concept could be, but it was soon after. The following article will be a quick and easy lesson on how to spot the next big mover. It will end with an excercise you can do TODAY to make a pic that falls into one of our Bullish Signals.

There are 3 patterns that I love which I am going to talk about today. Each of these patterns shows up in the market somewhere every day. You just gotta know how to find them. You do this by narrowing down the field of stocks you are looking at by using screeners that work for you. There are a million screeners, and ways you can make your own, so I can’t really get into all of them. But two of my favorite screeners to look through are the “Shooting Star” screeners, and the “Parabolic SAR Buy Signals.”

But before we get into the screeners any further, lets go over the kinds of charts you are going to be looking for. Each of these set ups are visible in either the 1 month or 1 week chart–sometimes I look at the 3 month too, but thats only to verify what I think I identified.

Lets look at 3 Bullish Flags: The Bullish Pennant, The Bullish Rectangle, and the Falling Wedge. For each flag, I will try to find an example of each pattern that happened sometime recently, instead of just drawing it by hand. The Top picture is the alert, and the bottom picture is the result. Sorry about the resolution, put the pics on from an iPad.

  • The Bullish Pennant-This forms after a spike in a stock price. For each of the following descriptions refer to the same number on the chart above.
    1. [In black ink above] Immediately after any spike the first identifier is that the price seesaws up and down, where the tops of each spike reach around the same price and the bottoms of each spike will hit at higher lows each time.
    2. [The drawing of the red ink] As there are more and more seesaws, with higher lows and similar highs, you can fit two lines that form a triangle, or “Pennant.” The squeezing together of this pattern into a point is what Day Traders look for.
    3. [Indicated in green ink] The move up should happen right around where the the triangle comes to a point. This can happen over the course of a single trading day but often, as in the case above, this pattern plays out a little slower. That is why you can use the 1 month chart or the 5 day chart.
    4. BE CAREFUL: Bearish signals look similar, BUT not the same! If you see a pennant forming, but the flat side of the Triangle is on the bottom then it is a sign of a incoming drop at the inflection point. Similarly, if the Bullish Pennant forms after a spike downward you have to be very cautious because it can be a signal of another move down, not up.
  • The Bullish Rectangle-This also forms right after a spike starting within the first minute after the spike.

    1. [In yellow ink] It will seesaw but instead of having higher lows, it will have equal lows, and equal highs.
    2. [The drawing of the green ink] If you fit two lines to the spikes you would draw the top and bottom of a rectangle.
    3. [The red ink, an estimate instead of a point] Timing on this is not as exact as a Pennant, because you don’t get to have the point of the pennant to tell you when to get in. However, usually this is a sign that you want to get in at the end of the trading day. Generally, as long as the stock price doesn’t break below that resistance line you drew, you are just holding and waiting for the signal to break into the actual pattern.
    4. BE CAREFUL! The same pattern can be a Bearish Rectangle if it begins after the price of a stock spikes downward!

    • The Falling Wedge-This one is a little harder to play because it has a bearish impression, at least initially. It also happens after the price spikes upward

    1. [In yellow ink] The price will meet its high point on its initial spike, and begin to seesaw again.
    2. [Drawing of green ink] However, each of the spikes will have lower highs, and lower lows–but not at the same rate of steepness as the top spikes. After 3 or 4 spikes you can begin to fit two lines. They will form a triangle, where the line you fit with the high spikes slants downward at a steep angle, and the line you fit along the low spikes slants downwards and a much less steep angle.
    3. [Red estimate] The point at which the two lines meet. This is when you want to get in to prepare for the move up…
    4. BE CAREFUL! This is only a sign that the spike the following day will move from wherever the stock is at, to about that same top resistance level as the initial spike. So do not hold long, because this can be a bearish signal for the long term or medium term. This is only good for overnight Swings in my opinion.

Now that you know what to look for follow these steps every afternoon or early morning:

  1. Get out your handy Stock Screener app or computer program and select a screener. Lets say you picked Shooting Star or just the Top Gainers of the day.
  2. Pull up the 1 month chart of every single stock that is in your screener.
  3. When you look through the charts look for spikes that occurred in the last 1-3 days.
  4. Pull up the 5 day chart of those stocks.
  5. Draw lines to fit any seesaw patterns you see. My guess is that one of those looks like a Pennant, Rectangle, or Falling Wedge.
  6. Have a friend verify it (or ask me to on Facebook!)
  7. Trade, dude or dudette! (Please, always use a Trailing Stop Loss to protect the downside and leave room on the top!)

Feel free to send a picture of what you are looking at to my Facebook Page! I will happily look over the chart and offer my opinion. I would be honored to hear your opinion, it’s always helpful to have as many eyes out there scanning the market as you can. I guarantee one of these patterns happens every day, you just have to find it!

You can subscribe to LIVE Stock Alerts ($9/month), 1 on 1 Chat ($6/month), and/or Early Access to my articles ($3/month) by emailing theblackinkeconomist@gmail.com to inquire! I use the Remind platform to send alerts, which you don’t need anything other then a phone number to receive!

Oh, in case you haven’t heard, I DON’T give investment advice. I write my opinion down and self publish to a blog. That is so far from legit DD you might as well be reading Chinese. My point is, don’t believe everything you read. Do your own DD. Thanks!

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