Stock Trading Predictions & Technical Analysis: HGSI

Sunday, November 8, 2009

HGSI - Pennant Formation

HGSI - BUY SIGNAL (imminent breakout)

We can observe a pennant formation with HGSI. After having a big breakout, going over the $23.50 resistance level, the price has gotten narrower with the volume steadily decreasing, a very common criteria of a pennant formation. HGSI's current price is around $27.50, and a sharp breakout above $28.00 could send HGSI as high as $32.00 ($28.00-$24.00= 4.00+ $28.00= $32.00). This price target measured according to the pole length of the pennant formation. This doesn't mean HGSI won't go any higher, but if it does go any higher, this is considered positive feedback (exaggerated move) which is usually followed by a negative feedback (reversion to the mean) pulling the stock's price back towards its fair value. Taking a position at $27.50 is relatively safe, because a move below $26.00 would be enough to trigger a SELL SIGNAL that could potentially send HGSI back towards $24.00. Therefore I would suggest setting a STOP LOSS order at $25.50-$25.75 (-7.27% to -6.36%). Considering how quickly this pennant formation was formed, the next move up could happen quickly but also pullback as quickly (but that doesn't necessarily mean this will happen). Basically taking a position at $27.50 with a stop loss at $25.50-$25.75 is relatively safe because it is below the -7% to -8% maximum stop loss I would suggest to set and to get a SELL SIGNAL. Seeing the RSI and Stochastic at or near overbought level do not seem very relevant in this situation (that's why I haven't it included them in this chart), but it may hint at a short lived move up.

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TECHNICAL INDICATORS

BUY SIGNAL: Indicates the possibility of the start of a new up trend or the continuation of the current up trend. This signal may be often given in the early stages of a potential new up trend that was preceded by a down or sideways trend. Such signals do not always succeed and may fail at time.

BUY: Indicates that the current up trend is already in motion and a BUY SIGNAL was already given earlier. A BUY does not necessarily indicate that the stock will continue higher from here, but simply that the stock is trending up. The further into the trend you decide to take a long position, the more risk you have of seeing it reverse back down sooner rather than later.

STRONG BUY SIGNAL: Indicates a stronger, more significant and reliable signal than a BUY SIGNAL which usually has less chance of failing. Such signals do not always succeed and may fail at time.

STRONG BUY: Indicates that the current up trend is already in motion and that STRONG BUY SIGNAL was already given.

SELL SIGNAL: Indicates the possibility of the start of a new down trend or the continuation of the current down trend. This signal may be often given in the early stages of a potential new down trend that was preceded by an up or sideways trend. Such signals do not always succeed and may fail at time.

SELL: Indicates that the current down trend is already in motion and a SELL SIGNAL was already given earlier. A SELL does not necessarily indicate that the stock will continue lower from here, but simply that the stock is trending down. The further into the trend you decide to sell a position, the more risk you have of seeing it reverse back up.

STRONG SELL SIGNAL: Indicates a stronger, more significant and reliable signal than a SELL SIGNAL which usually has less chance of failing. Such signals do not always succeed and may fail at time.

STRONG SELL: Indicates that the current down trend is already in motion and that STRONG SELL SIGNAL was already given.

HOLD: Indicates that traders who already hold this stock, should hold on as long as the trend persists. This signal is usually given during an up trend for which it would be considered too risky to take a long position at this point.

STRONG HOLD: Indicates that the current trend has been in motion for a while and rarely deviated away from the trend. Although the stock may continue higher, there may not be enough potential up side to trigger a BUY SIGNAL. This type of indicator usually means that the stock has very strong support levels which may have been tested but not broken.

WAIT: Usually given during a sideways trend for which we are waiting for a move that would trigger a BUY SIGNAL or SELL SIGNAL. This could also indicate uncertainty and the risk that would be taken if you were to take a long position at the current level. Taking a long position after giving a WAIT indicator is considered a gamble.