In addition to the “Three Peaks and the Domed House” pattern I profiled in this post about DECK, the megaphone/diamond is another one of those overused, rarely successful bearish topping patterns. And yet, just as in that post about Deckers, I am going to argue that this time it is valid. If you are a long-time reader of mine, then you will recall the posts I wrote leading up to the Flash Crash in 2010 calling out the market’s megaphone top, such as this post two days before the crash. These topping patterns are most valid after a prior steep uptrend. In the case of Priceline.com, that requirement is most certainly satisfied. Beyond that, you can see on the daily chart below there has also definitely been an uptick in selling volume of late to accompany the increasingly wild price swings.
To talk you through the pattern, what you have taking place is a loud, violent disagreement between buyers and sellers. Mild indecision within an uptrend tends to favor the bulls, while wild price swings on heavy selling volume usually bodes well for bears playing for a steeper correction. It is that psychology that forms the diamond pattern of price.
After the bell on Wednesday, PCLN sold off as an initial reaction to earnings. Should the move below $700 hold as a closing low by the end of this week, I like Priceline.com as a swing short going forward based on the diamond top thesis.
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nice post chess, as I like this pattern, this price action posted by some bearish options activity led me to a bearish thesis on earnings which played out…but with all earnings it could have went the other way and in earnings plays its all about risk management. But one does have to look at technical levels and play accordingly. This thing has been a monster so one would have to assume for blow out numbers w/positive forward guidance to continue its uptrend pace.
I remember when u first talked about the megaphone as it was the first time i had heard of that pattern.
u find the GREATEST pictures. Amazing!!!