Monday, July 25, 2016

Tech Talk: The Bull Flag




Tech Talk: The Bull Flag

This market is now in the seventh year of its bull run – certainly one of the longest in history. Interest rates have been a huge contributor to those rates – after all, if you can only get a percent or two on bonds, wouldn’t it make sense to be going after stocks when the business climate is strong? Also, of course, it is worth remembering that low interest rates have contributed a lot to the economy itself. A bit simplistic, of course, but it does help explain why share prices have been so strong in recent years. But I digress.

In this series of articles, I am initially describing some technical patterns I personally find helpful when I am scanning the market. Today’s pattern is the Bull Flag. This is a continuation pattern which occurs after the flagpole (a tall, white candlestick) signals that the pattern has begun.

Personally, I pay more attention to patterns than to the nature of the stock, but just for the record TSO3 the company uses ozone (the O3 in its name) for low-temperature sterilization. According to the company’s website, this is an efficient way to eliminate microbial contaminants that cause infection, and has applications for sterilizing “simple and complex medical devices for today and tomorrow.”

Several characteristics are apparent in the bull flag. Price consolidation occurs quickly within the flag, with declining volumes – a pennant pattern shown above by dotted lines. The next step is the breakout. I already own this stock – I bought in when the flagpole first showed itself.

Should you buy in? The classic approach is to wait until the stock convincingly goes through the pennant, on high volume.

Just to be clear, my comments on stocks are not buy-or-sell recommendations. Their only purpose is to describe certain stock patterns and ideas, using current
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