The “Three Push” Reversal pattern is one of my favorite chart patterns and set-ups to trade.
When it works, it can produce explosive gains quickly – often overnight.
Finisar (FNSR) gives us the most recent example of the Three Push Pattern on Negative Divergences via today’s collapse from the high instantly to a new chart low.
Let’s see what happened and what we can learn:
Next, compare the textbook lesson with the pattern above in Finisar.
We have three almost identical (symmetrical) swings (or drives) to three new highs in the uptrend.
We’ll see in moment that momentum and volume were also negatively diverging with these highs.
When you’re trading bullishly with a trend, always be on guard for exhaustion or divergence patterns.
Today’s gap-down sends shares tumbling to where the pattern started which overlaps the September gap-up level and the rising 200 day SMA at the $26.50 per share level.
The downside target objective is often the origin of the pattern and/or a prior support level like this.
Here’s the broader picture development with divergences on the Weekly Chart:
While the Daily Chart gives us a tighter perspective and potential trade entries, the Weekly Chart pulls back the perspective to highlight what’s going on at a higher timeframe.
Here we see strength in momentum and volume in September with the gap-up through the $24.00 resistance level.
However, volume AND momentum were weaker (lower) during the November high.
Finally, on the new swing high beyond $36.00 per share in February, momentum and bullish (buy) volume had dried up to visibly lower levels (locking in a lengthy negative divergence).
Combine this with the “Three Push” Price Pattern and we have a set-up for reversal.
That’s exactly what happened – or was confirmed – with toady’s down-gap.
Use this as a great example of the Three Push with Divergence Pattern playing out right before your eyes.
Follow along with members of the Afraid to Trade Premium Membership for real-time updates and additional trade planning.
Corey Rosenbloom, CMT
Follow Corey on Twitter: http://twitter.com/afraidtotrade