Buy signal was generated on 9/11/2008 off a BUY Pattern. Entry would have been $49.70. Target is $50.93. Close position at or above $50.93
For those who need a little bit of an explanation of a Jeanty Buy pattern, take a look at http://www.wikinvest.com/image/LUV_BUY.jpg and you should be able to see all the components of the pattern.
Now take a look at the pattern:
This pattern may not be a "pretty" as the ones I showed for GOOG and EMR (see my posts), but it has some very interesting aspects.
You still can see all the components of the pattern:
1) A downward move which only lasted 4 days (in the red rectangle), from $54.50 to $50.93
2) A retracement showing strong resistance at the 62% retracement level (a well known one) on 9/8/08. Look at how on 9/8/08 the high was $53.18 while the 62% retracement level is at $53.14. In other words, we were only able to pass the 62% retracement level by 4 cents before closing back at $52.24
Then on 9/9/08 the high was $52.70 while the 50% retracement level (another important one) was at $52.72. Looking at the graph it looks very much like resistance at that level.
So, on 2 consecutive days we are shown resistance at 2 key retracement (or resistance) levels.
3) After the first evidence of resistance at the 62% level there was a resumption of the downward movement from 9/8/08 to 9/10/08
4) On 9/10/08 we bounced off the 38% extension level. That level was at $49.57 and the low on 9/10/08 was $49.52, just 5 cents below that 38% extension (or support) level. We then went on to close on 9/10/08 at $49.70, just 13 cents above the support level. This constituted a bounce off a 38% support level.
Since all the components of a Jeanty Buy Pattern were present, a BUY signal was generated and the target price was computed as being the bottom of red rectangle, or $50.93. Assuming we got in at near the closing price of 9/10/08 of $49.70, we would have been looking at a potential gain of $1.23. It may not seem like much, but considering a buying price of $49.70 that would be a gain of 2.47%. And given the behaviour of these patterns, it would be likely to be attained quickly.
So, what happened?
We hit our target the next day on 9/11/98 when the high reached $51.88. We did not get to milk the whole move (and we should not be greedy with these patterns), but we hit our target. Our limit order would have kicked in and we would have closed our position with a nice 2.47% gain in 1 day.
