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Ending
Diagonal Triangles
We recognize that many investors may be unfamiliar
with technical-sounding phrases like "ending diagonal
triangle." Put simply, the phrase describes an Elliott
Wave price pattern — one with some exciting implications
for traders.
Ending Diagonal Triangles present traders
with an excellent, high-confidence opportunity to enter
a trade. Once the triangle is complete, the likelihood of
a sharp price change produces substantial profit potential.
Here's how Frost & Prechter's Elliott Wave Principle
— Key to Market Behavior (pg.36) describes ending
diagonal triangles:
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Ending
Diagonal Triangle:
A
special type of wave that occurs primarily in the
fifth wave position at times when the preceding move
has "gone too fast," as Elliott put it.
The illustration above shows an ending diagonal triangle
in its typical position in larger impulse waves, though
a very small percentage are also found in the "C"
wave position of A-B-C corrective formations. In either
case, they are found at the termination points of
larger patterns, indicating exhaustion of the larger
movement. A rising diagonal (pictured above and in
the Flash example provided) is bearish and is usually
followed by a sharp decline retracing at least back
to the level where it began.
pg.36,
Frost & Prechter's Elliott Wave Principle |
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This particular price pattern was crucial
to our decision to short Concord EFS. The Concord EFS example
below is from our premium stock picking service, Prime
Stocks Flash. It includes the actual Flash
we issued to enter the trade and the actual Flash we issued
to take profits.
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Sell
Concord EFS (CE) Now
4/18/2002
9:59:43 AM
Investors:
CALL YOUR BROKER AND SAY :
SELL 100 [or fill in the
number] shares of CE at market, to Open. As
a stop, BUY 100 [or fill in the number] shares
of CE at 38.61, to Close. GTC.
or
DO THIS ONLINE
SELL 100 [or fill in the
number] shares of CE at market, to Open. As
a stop, BUY 100 [or fill in the number] shares
of CE at 38.61, to Close. GTC.
"Cashless
commerce solutions" has a nice ring to
it. Ad agencies get big bucks to come up with
such slogans, which in turn appear in the ads
and web sites of companies like Concord EFS,
Inc. (CEFT). Catchy slogan duly noted, the pattern
for this stock says that a big bout of "cashless-ness"
is ahead for the poor investors who own it.
Sell
CEFT now.
Analysts
are infatuated with CEFT--especially its upstream
price move against the two-year downward flow
of the major indexes. One analyst calls it the
"Porsche" of the electronic transaction
industry. Options speculators are equally smitten.
Obviously
these folks don't think CEFT will far more likely
reverse and catch up with the plunge in the
broader market, nor do they seem worried that
growth in "convenience at the cash register"
depends on consumers taking on more debt in
a down economy. Could these issues be exactly
what's on the minds of CEFT insiders, who have
been heavily selling their stock in recent months?
The
CEFT price pattern is what's on our mind: the
upside pattern has concluded with a diagonal
triangle (blue lines), evidence that the trend
reversal will be sudden and deep.
Get
in now by shorting CEFT with a stop at 38.61. |
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Take
Concord EFS (CE) Profits Now
3/5/2003 10:38:44 AM
Investors:
CALL YOUR BROKER AND SAY :
BUY 100 [or fill in the
number] shares of CE at market, to Close. And
CANCEL stop (23.31).
or
DO THIS ONLINE
BUY 100 [or fill in the
number] shares of CE at market, to Close. And
CANCEL stop (23.31).
Ten
months ago (April 18th), we recommended selling
Concord EFS (CE) at 32.84. That moment appeared
especially opportune because we saw the long-term
pattern near the peak of an ending diagonal
triangle. Indeed, that peak arrived on May 15th
at 35.06, and from there, prices have declined
impulsively. This confirms what the Elliott
waves told us about a major trend change.
But
prices have fallen a long way, and more importantly,
a five-wave decline now appears complete (or
very nearly so under a count which involves
a triangle fourth wave). A strong "corrective"
leg higher should be at hand. Stiff support
resides near current levels. We also note that
Wall Street is turning "neutral" on
CE amidst "bad news," and that put
buying has exploded in the last couple of weeks,
driving put/call ratios well past the highs
of the last couple of years.
Buy
CE to cover short positions and cancel the buy
stop at 23.31. |
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The above charts and commentary speak
for themselves, but the outcome of this trade recommendation
speaks loudest of all. This is a great example of the profit
potential found in ending diagonal triangles.
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