AAR – After Action Report
Today our “flag and pennant” concerns peaked. Have a look.
We won’t offer anyone advice. Just education and news. Having said that:
Pennants and flags are short-term continuation patterns that appear after a sharp price move, usually called the “flagpole.” A flag forms when price then drifts sideways or slightly against the prior trend inside roughly parallel boundaries. A pennant is similar, except the consolidation narrows into a small triangle as buyers and sellers temporarily reach equilibrium. In both cases, the market is catching its breath rather than necessarily changing direction.
The trading implication is that the preceding trend will usually resume once price breaks out of the consolidation. In an upward move, traders watch for a breakout above the flag or pennant; in a decline, they watch for a break below it. Volume often contracts while the pattern forms and then expands on the breakout, which adds credibility. A breakout without increased volume is more vulnerable to failure or reversal.
A common measuring technique is to take the length of the original flagpole and project it from the breakout point to estimate a possible price target. But flags and pennants are tendencies, not guarantees. The cleaner the initial move, the tighter and shorter the consolidation, and the stronger the breakout volume, the more useful the pattern tends to be. A price move back through the opposite side of the formation generally invalidates the setup.
Tomorrow could be amazing. In part because there are (unconfirmed) reports on the web about foreign embassies in Tehran (UK, Fr. Ger.) beingd evacuated. That hints of a tough weekend ahead. And that would fit with our “WW III Weekend War” contexting.
BUT short term? Higher early tomorrow is possible but much will hinge on overnighty reactions worldwide.
The reason would be to give the commercials a higher shorting entry and – worst cadse – that’s more cushion if WW III goes poorly this weekend.
OR – another false peace and the continuation rally screams higher.
Popcorn with Cheerios, anyone?
~ure