Bullish Flag Play on NVEC Explanation

Posted by Blain Reinkensmeyer
October 30, 2006 at 11:01 am

Just posted earlier on NVEC being up 9% today, you as a trader could have banked off this play due to the bull flag NVEC raised on Friday. NVEC has been trading in a range of roughly $39 to $43, and after climbing as high as $42.84 midday Friday, the stock sold off and closed at $40.05. At first glance you may think this is bearish, after climbing so far the stock closes up a measily $.40? Traders must have been selling off and tomorrow it will surely tumble. This is very wrong.

Two main points make this pattern very bullish for a next day run:

The RANGE: NVEC’s daily range showed the upward potential of the stock. The range on the day was also to the upside, not the downside. Yes, the stock closed at the bottom of the day’s range, but it also closed into $40 support.
The VOLUME: Volume was very strong on the day, and the volume that pushed the stock UP was alot heavier than the volume that pushed it DOWN to its near even close. This is bullish because it means that big players were taking positions, while the fish were taking profits.

So, next time you see the chart below (attached for a further visual example), you know you have great odds on playing your pick for some quick gains. NVEC is currently up over 8% already today. Also, use this pattern for the downside too, more often than not strong sells to the downside intra-day recovered to almost even can signal another sell off day to come.