STOCK GOODIES PLAYS OF THE WEEK

[Black_NITE]

P&F Reversals and Continuations

The reversal versus continuation aspect depends on the direction of the prior move and relative price levels. A Bearish Signal Reversed pattern that forms just after a new low would clearly be a reversal pattern. The chart below shows Websense (WBSN) hitting a new low in early 2009. This low was part of a Bearish Signal Reversed pattern because the stock forged a Double Top Breakout just after this new low. The second pattern is a bullish continuation pattern because it formed as a correction after a new high. Notice how the stock forged a multi-year high in April 2010 (red 4).



A Bearish Signal Reversed pattern that retraces a portion of the prior decline or forms as a correction within a bigger uptrend can be considered a continuation pattern. In bar chart terms, such patterns would be similar to falling wedges or flags. The chart below shows Avnet (AVT) with two continuation Bearish Signal Reversed patterns. The first formed a low well above the 2008 low and reversed with a Double Top Breakout. After a big advance above 30, the stock corrected again with a Bearish Signal Reversed pattern in 2010. This pattern was reversed later in the year with a Double Top Breakout in October 2010 (red A).

http://stockcharts.com/school/data/media/chart_school/chart_analysis/pnf_charts/pnf_signal_reversed/pnfbbsr-8-avt-flag.png