Bull Flags

• Ian Wyatt
• On 5:30 pm EDT, Wednesday September 30, 2009

I had a feeling this morning's sell-off might reverse. It seems the early market-moving economic data, which showed a drop in The Chicago Purchasing Manager's Index, wasn't as dire as the initial reaction by traders made it seem. 

 

Still, the major indices all finished in the red. While briefly tip-toeing in positive territory only to lose momentum might seem disappointing, it's important to note that the bulls defended an important support level at 1047 on the S&P 500. Ultimately, it appears stocks are stalling ahead of Third Quarter earnings.

 

Now, let's move on to the day's Top Gainers. Today's highlights were dominated by energy stocks. Petrobras Energia (NYSE:PZE - News), the Argentina-arm of the national oil company of Brazil, Petroleo Brasileiro (NYSE:PBR - News), dominated the action today with a whopping 180% gain. It's highly unusual to see a large cap stock make the Top Gainers list. These are mature companies - it's very rare that management implements such a fundamental change to the business model that investors revalue the company by 179%, overnight.

 

In the case of Petrobras Energia, today's move is the result of a merger with its holding company, Petrobras Energia Participaciones. There's no value being added by this move. It's just the removal of a de facto dilution by having two stock issues cover essentially one company.

 

Other energy companies that made the list include American Oil & Gas (AMEX:AEZ - News) up 19%, Pioneer Drilling (AMEX:PDC - News) up 15%, Puda Coal (AMEX:PUDA - News) up 14% and Rexx Energy (NasdaqGM:REXX - News) up 12%. Resolute Energy (NYSE:REN-WT - News) had its warrants jump 15% on conversion details. 

 

We also saw another appearance by Tri-Valley (AMEX:TIV - News), an oil and gold company I discussed just days ago, on September 28. Tri-Valley was up 13% today on 3X average volume. But investors should note that the stock failed to take out the highs it achieved last time it made the Top Gainers list. In fact, $3 is looking like a pretty solid ceiling for this stock, so if you want to trade, waiting for a pullback looks to be the right move.

 

A daily candlestick chart shows a textbook example of a bull flag pattern starting with the stock's initial breakout move… 

 

I would expect the stock to move down toward $2 before it attacks that onerous $3 resistance level again. But of course, this stock is being driven by news, so positive news could move the stock before the flag pattern plays out.

 

Speaking of flag patterns, this pattern is showing up in a lot of small cap stock charts. Find one just as it's breaking out, and you can make some good money. I know I included the words "avoid bio-techs" in my criteria for selecting stocks for investment from the Top Gainers, but take a look at this chart…

 

 

I don't know what Opexa Therapeutics (NasdaqCM:OPXA - News) does, but if this bull flag pattern plays, you could make a couple bucks a share.