Pennants
Pennants are small continuation patterns that represent brief pauses within an already existing trend. They are characterized by converging trendlines and have a definite bullish or bearish bias depending on the overall trend.
Bearish pennants appear in the middle of large drops or immediately after a stock has broken down from a substantial rally.
Downside breaks do not have the same volume requirement as their bullish counterparts. Like other bearish breaks, there often is a delayed volume surge.
The price action prior to the pennant formation can be used as a guide in predicting the price movement when the stock breaks down. If the move into the pattern was quick and full of energy, one can expect that same trading activity when support is taken out. But if the stock slowly meanders its way into the pattern, do not expect big fireworks on a breakdown.
The expected price movement is approximately equal to the distance of the move into the pattern.
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