this is a really interesting chart setup because it is looking for a potential reversal of what has been a very solid uptrend for Lennar stock. The key aspect that we are looking for with this type of setup is for it to accelerate outside of the Bollinger Bands which essentially means that it is trading out of the expected recent range based on a measure of 2 standard deviations away from the moving average – which is 20 periods in this case.
In this case you can see that the basic formation is similar to a double top but the difference is that we look for a different confirmation – simply a subsequent peak formed within the Bollinger Bands. The trough in between must not pierce the moving average. You can see with the lines that I have drawn where this formation gets its name.
The trader of this setup would look to go short if the price falls below the previous session low of $21.76. The stop would be placed around $23.20 which is a little above the high of the peak. I don’t set a target here as we will be looking to shift our stop in the event of subsequent lower peaks in the price forming.
For the candlestick fans out there you will also not the bearish engulfing pattern that set up the peak which some of you will view as a trade signal on its own.
Let me know if you have any thoughts – DL.