FAS Analysis

FAS has gone into a flag formation, just below its fifty-day moving average. The pattern forming is a pennant, which brings up the trading adage of "the flag flies at half-mast." This indicates that upon breakout, the price will rise an amount equal to the rise into the flag. That calculates as (7.80 - 2.32) + 4.90 = 10.38. Breakout would be when price moves above the downtrend line now around the 7.00 level.

Note, too, on the longer-term graph, FAS is also forming a bump-and-run bottom, which would be confirmed once FAS closes above the downtrend line now approaching 7.00 (it's now around 7.80, the highest point of the pennant). The target price calculation would be the lowest point (2.32) to the downtrend line directly above 2.32 (estimated at 12.00) added to breakout point (7.00), or (12.00 - 2.32) + 4.90 = 14.80. One author says the target as the highest point of the entire pattern , which would be 55.50.

Finally, and best of all, the pattern upon breakout above the downtrend line qualifies as a high, tight flag because the price going into the flag has risen over 100% in less than two months. Upon breakout, the high, tight flag rises an average of 68%, meets this target 90% of the time, with breakeven failures approaching 0%. The target here remains 10.38 as calculated in the "flag at half-mast" above, which is only 48%, but an acceptable trade. Should the stop-loss point be 6.27 (Friday's low), the profit:loss ratio is 3.38:0.73 assuming a fill at 7.00. That's a ratio of 4.6:1, well above the 3:1 acceptable minimum.

If this isn't enough the Point & Figure chart target is 17.75 with a breakout above 7.5. Be greedy but use a trailing stop. With ETFs, especially leveraged ETFs (and FAS is a 3X), not using a trailing stop is hazardous to your wealth.