These four stocks have all broken to the downside out of chart patterns recently, indicating continued moves lower. Since the breakouts have already occurred pullbacks toward the former pattern, or levels within the pattern, present the best opportunity to get in.

Celgene (Nasdaq:CELG) put in a double-top during December and January, and then proceeded to decline below the low ($157.18) between the two the highs. The break lower signals the price could continue to fall once this pullback to the upside ends. The price is likely to meet resistance at or before $163, which presents an area to get short or exit longs. One possibility for a stop is to place it above the recent high of $170.88; this can moved down to a newer recent high after the order is filled and the price has fallen away from the entry point. If the price holds below $163, and then moves back to the downside, the target is $140 based on a Fibonacci extension level.

Freeport-McMoRan (NYSE:FCX) has also recently completed a double-top. The price made two similar highs near $38 in October and January, then saw a strong decline below the low ($33.81) between the two high points. $34 to $35.50 is a likely resistance area on the move higher. A move into that region which slows down and then begins to drop again signals the entry. Initially a stop can be placed above $37, or above a new swing high as it forms in the resistance area. The second stop loss option keeps risk very small, but has a greater chance of being pre-maturely stopped out. The downside target is between $29 and $27.50; the deeper the pullback into the resistance zone, the more conservative the target.

Chesapeake Energy (NYSE:CHK) made a high of $29.06 in November and has been making lower lows since. It recently broke below triangle support at $25 signaling a likely further decline. Near $25 is the entry area for shorts. The target for a triangle breakout is $21; stops can be placed above recent highs near $27. A rise back above $27 indicates the breakout lower was false, and the uptrend resuming becomes a possibility.

Ingersoll-Rand (NYSE:IR) has been moving in a trend channel since May, but broke below that channel in February. The price penetrating the lower trendline isn't the real issue-trendlines often need to be redrawn. The drop from the top of the channel was aggressive, the bounce off the channel lows was muted, and then selling began again. If the price breaks back below the recent low at $56.12 it is likely the price will continue lower, as a lower high and lower low will be in place. The downside target is $53.40.

The Bottom Line

Chart patterns offers a way to visually spot trade set-ups based on reversals or continuation of trends. The risk and reward of these patterns can vary greatly based on how they traded and where stops and targets are placed. Stops are typically placed above a recent swing high (for downside breakouts), but can be moved down as new swing highs form, reducing risk. Always trade within your personal risk tolerance.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

Related Articles
  1. Chart Advisor

    Four Chart Patterns To Watch This Week

    This week is likley to reveal if the S&P 500 is in a consolidation with the expectation of a move higher, or if it's topping out. Here's four ways to play either scenario.
  2. Chart Advisor

    ChartAdvisor for November 27 2015

    Weekly technical summary of the major U.S. indexes.
  3. Chart Advisor

    Pay Attention To These Stock Patterns Playing Out

    The stocks are all moving different types of patterns. A breakout could signal a major price move in the trending direction, or it could reverse the trend.
  4. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  5. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  6. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  7. Technical Indicators

    Using Pivot Points For Predictions

    Learn one of the most common methods of finding support and resistance levels.
  8. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  9. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  10. Chart Advisor

    Watch These Stocks for Breakouts

    These four stocks are moving within price patterns of various size, shape and duration, and are worth watching for a breakout
  1. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  4. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  5. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  6. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>

You May Also Like

Trading Center