The Pennant: A Winning Chart Formation

Meir Barak |

A pennant formation can be bearish or bullish. In the pennant formation, the price consolidates while moving in the form of a pennant, as seen in the chart. You need to sketch the pennant in your imagination and then wait for the exit beyond its boundaries, as we see in the chart of SanDisk Corporation ($SNDK) below. 

The technical premise is that at the end of consolidation, at approximately 80% of the pennant’s expected range, a sharp shift in movement should be executed. Usually, the exit from the pennant follows the original trend. In other words: if the stock showed an uptrend before its consolidation in the pennant formation, it is reasonable to assume that the price will break out upward in accordance with the original trend, similar to a bull flag, but without the flagpole. By contrast, if the price consolidates into a pennant while trending down, it is reasonable to assume that a breakdown will occur with a downward movement, similar to a bear flag, but without the flagpole.

Pennant___10_28.jpg

Pennant

Pennant Breakout, SanDisk – SNDK

SNDK_Pennant_Breakout_10_28.jpg

SNDK-Pennant

SanDisk rises immediately when the trading session opens [1], encounters resistance, and consolidates in the pennant form. The pennant breaks out [2] and SanDisk continues rising. The buy position can be at the exit from the pennant, or in the transition above the “flag” area. As you see, this breakout formation is very similar to that of the bull flag, but instead of consolidating beneath the upper resistance line, the price consolidates in the shape of a pennant. Personally, I prefer to trade the bull flag formation –it is clearer and simpler to identify entry positions. That said, the pennant formation is still a valuable tool for traders looking for the right entrance or exit point of a stock.

To learn more about the stock market and to begin your own journey toward financial independence, visit Meir Barak's site Tradenet and check out his book "The Market Whisperer."

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
SNDK SanDisk Corp. n/a n/a n/a 0

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