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Tickers in this Article: UPS, LIZ, JBLU
The descending triangle is a chart pattern that is commonly used by active traders. As you can see from the chart below, the pattern is easily recognized by its distinct shape. It is constructed by drawing one trendline that connects a series of lower highs and another that has prevented the price from moving lower in the past (support). Technical traders will wait until the price falls below the level of support because it is usually followed by a wave of sell orders.


Descending triangles are regarded as a bearish chart pattern and can often be found at the end of a prolonged uptrend. Once the breakdown occurs, traders enter into short positions and aggressively push the price of the stock lower. This pattern has gained a wide following because it clearly shows when the demand for the asset is weakening; when the price breaks below the support, it is a clear indication that downside momentum is likely to continue or become stronger. Let's take a look at a few companies that have recently been trading within a descending triangle pattern.

United Parcel Service Inc. (NYSE:UPS) - Looking at the daily chart of UPS, you'll notice that it has been trading within a descending triangle pattern since late 2004. The series of lower highs illustrates that the bulls have been slowly losing control of the direction over the past couple of years. The reason this chart is of specific interest today is because the bears have been able to send the price below the long-term support (shown by the black circle). This breakdown will be used by many active traders to signal a move lower, but it is important to note that the bulls have been able to briefly send the price below this trendline in the past. Given the long-term nature of this pattern, it may be wise to wait a few days to ensure that the breakdown is valid.


JetBlue Airways Corporation. (Nasdaq:JBLU) - JBLU is another company that has recently been trading within a descending triangle. As you can see from the chart below, the price has been trending lower since it broke down in late May. Also notice that the price moved back toward the horizontal trendline in early June, but failed to break above it. This retest of the entry level is known as a throwback and it commonly occurs after a breakdown. The failed move higher is used by many traders to confirm the validity of the pattern and it often signals a continuation of the downtrend. Bears will likely set their stop-loss orders above the nearby resistance levels while the bulls will wait on the sidelines until the downward pressure subsides.


Liz Claiborne Inc. (NYSE:LIZ) - The chart of LIZ has also caught the attention of short-term traders because it has been trading within a descending triangle pattern. The price was briefly pushed below the support last week, but the broad market strength helped send it back above. The rise in volume that accompanied the move below the trendline confirmed that the breakdown was valid, but recent volume has been lighter than average, which suggests that the bulls are hesitant of any further move higher. Traders will keep an eye on this stock because another break below the trendline could trigger a sharp move lower.


For more on the descending triangle see:
Triangles: A Short Study In Continuation Patterns

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