United Continental Holdings, Inc., together with its subsidiaries, provides air transportation services in North America, the Asia-Pacific, Europe, the Middle East, Africa, and Latin America. The company transports people and cargo through its mainline and regional operations. As of December 31, 2016, it operated a fleet of 1,231 aircraft.
Take a look at the 1-year chart of United (NYSE: UAL) below with my added notations:
UAL had been trending higher since July, but recently formed what appeared to be a triple top price pattern (red). Triple tops are reversal patterns that are as simple as they sound: Rallying up to approximately the same point on (3) different occasions (T) while finding the same support twice in between the tops. As with any price pattern, a confirmation of the pattern is needed. UAL would confirm this pattern by breaking the $70 support (green) that was created by the triple top pattern, which the stock did yesterday.
Keep in mind that simple is usually better. Had I never pointed out the triple top pattern, one would still think this stock is moving lower simply because it broke below the $70 support level. So, whether you noticed the pattern or not, the trade would still be the same.
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The Tale of the Tape: UAL formed a triple top price pattern with a $70 support level, and the stock has confirmed the pattern by breaking support. A short trade could be placed on any rally up to $70 with a stop set above that mark. A break back above $70 could negate the forecast for a move lower.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT
Follow me on Twitter: @cmtstockcoach