STOCK GOODIES PLAYS OF THE WEEK

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P&F Bear Trap

A Multiple Bottom Breakdown includes a Triple Bottom Breakdown, a Quadruple Bottom Breakdown and anything wider. A Triple Bottom Breakdown occurs when two successive O-Columns form equal lows and the next O-Column breaks below these lows. A Quadruple Bottom Breakdown triggers when three successive O-Columns form equal lows and the next O-Column breaks below these lows. For a Bear Trap to be possible, this breakdown can only be one-box. Breakdowns that move two or more boxes below support do not qualify. The Bear Trap occurs when prices reverse after a one-box breakdown and the subsequent X-Column moves at least three boxes higher. A one-box breakdown is vulnerable to whipsaw and the immediate reversal shows renewed buying pressure.



The chart above shows Snap On (SNA) with a Quadruple Bottom Breakdown in August 2010. Notice that SNA broke support with only one box or one X below the prior three lows. This breakdown did not last long as the stock quickly reversed and forged a three box reversal. The rising X-Column extended to forge a Double Top Breakout that fully negated the Quadruple Bottom Breakdown.

Bullish Catapults

Bull and Bear Traps can sometimes fail and evolve into catapults - kind of like a double trap. A Bullish Catapult forms with a Triple Top Breakout, a pullback into the pattern and then a Double Top Breakout. A one-box Triple Top Breakout and a pullback into the pattern qualify as Bull Trap. Chartists should be careful because the Triple Top is a congestion area that represents a support zone. While the pullback into the pattern shows hesitancy for the bulls, it takes a Double Bottom Breakdown to produce a bearish P&F signal that would fully counter the original Triple Top Breakout.



The chart above shows Vertex Pharma (VRTX) with a Multiple Top Breakout in October 2010. The breakout X-Column exceeded the prior four highs by one box. This breakout did not last long as the stock reversed with a decline back into the congestion zone (green box). The lows of this zone ultimately held and the stock forged a Double Top Breakout on the next upturn. The Bull Trap failed and evolved into a Bullish Catapult.

Bearish Catapults

The opposite holds true for Bear Traps, which can evolve into Bearish Catapults. These patterns form with a Triple Bottom Breakdown, a bounce back into the pattern and then Double Bottom Breakdown. Technically, a one-box Triple Bottom Breakdown and a bounce back into the pattern qualify as a bear trap. Chartists should be careful because the Triple Bottom is a congestion area that represents a resistance zone. While the bounce back into the pattern shows resilience, it takes a Double Top Breakout to produce a bullish P&F signal to fully counter the original Triple Bottom Breakdown.



The chart above shows Unum Group (UNUM) with a Triple Bottom Breakdown. Notice that this support break occurred with just one box (one O below the prior two O-Columns). The breakdown did not last long as the stock reversed higher to forge a Bear Trap. However, the Bear Trap did not last long either as the stock turned back down and broke below its prior low. The combination of a Triple Bottom Breakdown and Double Bottom Breakdown forged a Bearish Catapult.