I thought you may be interested in reading a stockscores strategy using chart parterns as potential plays. If they are correct it should be good for all plays including our NOT and other play in the area. In the description below Ryan mentions the stock showed some life on Friday...Well isn't that interesting. Didn't our NOT and BMK and SPQ and FWG show some life on Friday...Monday is shaping up for some excitement.

A common theme among Head and Shoulder Bottom, Ascending Triangles, Pennants and Rectangle Consolidation patterns is a break through resistance from low price volatility, usually with volume supporting the breakout. Rising price bottom formations in to the breakout point are common, but what market dynamic do these patterns really represent?

Rising bottoms are a sign of growing optimism among investors. As time passes, they demonstrate a weakening of selling force and increase power among buyers. As a stock moves up toward a resistance price point, the market is faced with the upper limit on what investors believe the company to be worth. We often see that stocks will go in to narrow trading ranges under resistance as investors come to a consensus on the value of the company. When stocks break out from this condition, they may be signaling significant new fundamental information at work in the market since resistance has been broken from strong consensus out of a period of optimism.

The Sentiment Stockscore is useful for finding optimism in the market, and the Signal Stockscore is heavily weighted on the abnormal market activity that comes with breakouts. By looking for stocks that have a Sentiment Stockscore of 60 or higher, and a Signal Stockscore of 80 or higher, we can consider charts that may have a good chart pattern set up. The Stockscores Simple Market Scan adds in some other technical filters to shorten the list of potential candidates further.

This strategy is not solely about finding stocks with good Stockscores. The most important step is visually inspecting the charts to ensure that the chart patterns are what we are looking for. A good chart pattern will have the following characteristics:

A break through resistance

Abnormal activity, in terms of price and volume activity

The break through resistance should be from a period of low price volatility. Low price volatility is characterized by the price range of trading on each day (how tall the trading range is on the chart) and by the range of trading over a number of days (are the trading days side by side on the chart, or is there a price trend?)

A show of optimism leading in to the break through resistance from low price volatility.

It is necessary to have all of these criteria, many traders forget to check whether the stock was trading with low price volatility before the breakout, or to make sure that the stock is truly breaking through resistance and will not encounter more selling pressure soon.

1. V.PRB
I would not consider this a really high probability trade but if it does work it should give a high multiple of reward to risk. V.PRB has been quiet for a few months and basing nicely after a sharp run higher in September. The stock started to show some life on Friday and it looks like the buyers are trying to take control of the stock again. If the stock falls below $0.62, consider it a dud. But if it works, we could see a run up toward $1.50.