3 Classic Chart Patterns with Good Upside
Like any other approach to equity analysis, these classic chart formations aren’t accurate 100% of the time but can be powerful tools to predict where...
Cup and handles, head and shoulders, wedges, triangles, pennants, flags, and doubles tops, oh my! Unless you’re familiar with technical analysis, these may sound like a new line of decorative housewares.
They are actually types of stock price patterns that help guide investors’ buy and sell decisions. Like any other approach to equity analysis, these classic chart formations aren’t accurate 100% of the time but can be powerful tools to predict where a stock is headed.
The unusually named patterns refer to shapes that are created by a combination of trendlines or curves. Technical analysts pay attention to them because they tend to repeat themselves. They typically signal a reversal in a prior price pattern or a continuation of a temporarily interrupted trend. Some are bullish and others are bearish.
Let’s look at three recently formed bullish chart patterns that point to significant upside.
Will TopBuild’s Stock Price Keep Going Up?
On Monday, a continuation diamond pattern popped up on the daily TopBuild (NYSE: BLD) chart. This bullish event is born out of a downtrend characterized by higher highs and lower lows. Eventually, the lows start trending upward as the trading range narrows. When TopBuild’s price broke out of the diamond shape formed by the relevant trend lines, it signaled that the previous uptrend is back on.
TopBuild has broken out of a long consolidation period that lasted almost an entire year. The time it will take for the continuation diamond pattern to form, also referred to as the pattern duration, is about eight months. If is holds true to form, the TopBuild’s price will reach a target range of $272 to $283. This is determined by projecting the prior uptrend well into next year. At the midpoint, this represents 25% upside from Monday’s close.
What Does EQT’s High Volume Breakout Suggest?
On Monday, oil and gas producer EQT (NYSE: EQT) gapped higher in three times its average daily volume. This was a bullish move in and of itself that was tied to a surge in commodity prices. It was also a significant event because it marked the start of not one, but two bullish chart patterns.
First there was a head and shoulders bottom, an intermediate-term pattern that looks set to unfold over the next few months. The pattern is named after the human shape it resembles and is akin to a stick figure doing a headstand. The head is the lowest point of the drawing and is complemented by higher lows, or shoulders, at either side. Once the stock price closes above the so-called ‘neckline’, ideally in strong volume, a reversal has taken place.
The same day a symmetrical continuation triangle took shape from that same high-volume jump. This triangle is formed by the convergence of two trendlines as the trading range narrows. Prior to the triangle reaching its peak, the stock price breaks out above the upper trendline. It too tells us that a consolidation period has ended and its game on for the prior uptrend.
Both of EQT’s chart patterns are projected to last about 3-4 months and both come with good upside. In the case of the continuation triangle, EQT could climb from the low $20’s to around $29. Not a bad gift for the holidays.
Is FleetCor Technologies Stock Chart Bullish?
FleetCor Technologies (NYSE: FLT) also has a two-for-one deal going when it comes to chart patterns. When the stock moved higher for the fourth straight day on Monday, it sounded the alarm that the recent bottom is likely in the rear-view mirror.
A diamond bottom was confirmed when FleetCor surged above $270 and did so in above-average volume. The breakout from the pattern’s boundaries told us that a major reversal is underway and a new rather than a continued uptrend is ahead. This is a symmetrical pattern in the sense that it took roughly the same amount of time to form as it is projected to run. If it sticks, FleetCor could be closing in on $300 by January.
Monday’s diamond bottom was not to be outdone by a triple bottom which also took hold the same day. This uncommon but powerful pattern is a cousin of the head and shoulders bottom. Rather than have multiple low points, the triple bottom is marked by a stock dipping to roughly the same price level on three occasions. Not only does the event show that the stock has a solid support level but that the third time is probably the charm for the price to finally move higher. Of course, it always possible that the stock eventually reverts to the bottom a fourth time, but it is unusual. Hence the triple bottom has become cemented as a classic bullish chart pattern to be on the lookout for.
When two bullish patterns form simultaneously, they often have similar target ranges. That is indeed the case with FleetCor’s recent dynamic duo which are both pointing to a run to the $290’s over the next few months.