In baseball, a pennant is a flag that typically is considered the emblem of victory or championships.
In investing, a bullish flag or bearish pennant are patterns that indicate how a stock might move next.
The bullish flag resembles a pole with a flag, as we’ll see in just a minute. The pattern starts off with the stock trading higher for multiple sessions. This would be the pole portion of the bullish flag. Thereafter, the stock begins to consolidate, representing the flag portion of the pattern.
Now that we’ve got a basic idea of a bullish pattern, there’s an easy way for you to filter for stocks in a specific sector, and best of all, it’s free. With the screener tool on www.finviz.com, you can filter stocks in the biotech industry, and then look to see a chart view.
If you look at the lines on the chart, you can see a textbook example of a bullish flag pattern. That in mind, you might consider purchasing the stock (after completing your due diligence and researching the fundamentals and catalysts of the company). Let’s take a look at how the trade would have turned out.
The bottom line
The bullish flag pattern could be helpful in finding stocks to trade on the long side. It can be a filter for finding stocks on the move. However, you would need to do further due diligence and look into the company’s fundamentals, such as the treatments in its pipeline, management team, financial results and upcoming catalyst events. If all the stars align, that’s when you consider a long position in the stock.
Kyle Dennis runs Kyle Dennis’ Biotech Breakouts (biotechbreakouts.com). He is an event-based trader, who prefers low-priced and small-cap biotech stocks.
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