By: Gino Lattarulo
Recently I posted an Article on Tivo Inc. (NASDAQ:TIVO) 
When the stock had risen significantly on positive news I outlined a chart pattern formation called a “Bull Flag”. The expectation was that if a breakout of this pattern were to occur, TIVO would be poised to move into the $ 20.00 range. As we can see in the current chart, the stock action has broken out above the Flag formation at approximately $16.50 and is moving its way up, creating higher lows and finding consistent support at the 9 (10) day Exponential Moving Average. The trade was executed at the break-out point and 10 Call Contracts for the August 2010 $16.00 strike were purchased. So far so good. We will continue to monitor the situation and hopefully turn out some great profit.
Now lets look at another similar Bull Flag formation. 
The stock is called Somaxon Pharmaceuticals (NASDAQ:SOMX). I usually stay away from the Health Care & Bio Tech Sectors but this one looks pretty good and I’m feeling froggy. We can see in the chart that it has formed a similar pattern to Tivo, except the top formation is more of a pennant than a flag, which is fine, it’s just noteworthy because this pattern has the same characteristics. We also see that the volume has spiked nicely in the formation of the pole and has since diminished during the formation of the flag (pennant). If the stock action does push through the top line it would have a potential target price of approximately $13.00. The action on Call Contracts for August and later is not very liquid so if a decision is made to pull the trigger on a trade, we would just buy the stock itself and execute a stop if the price closes below the break-out point on a daily candle.
If there are any questions please feel free to post and I will respond as quickly as possible.
REMEMBER: Never take a trade unless you are willing to lose the entire amount you put on the table. It’s the market’s job to take your money so protect yourself.
