Want to see a flag pattern in action? Check out Cheetah Mobile (CMCM) (August 12, 2016)
CMCM
We’re looking at Cheetah Mobile ( NYSE:CMCM ). This is a stock that we covered in our Strategy Session last week when we were here. We get the breakout from a squeeze and then this is known as a flag pattern; where the stock goes, essentially, parabolic. And then there is a little consolidation like this and we typically want to see it on lesser volume. If it’s on heavier volume then it’s kind of a problem because it just shows a lot of trading activity after a big bounce. What we want to see is NOT so much trading activity, because what that reflects is traders are comfortable with the stock at that current price. And then finally we get this breakout here. So this was a nice move on Thursday. And then Friday this continues to move here. They report earnings on Friday, the 19th, right up here.
I think the stock can move for a bit up into earnings. I can’t tell you where the stock is going to go when they report earnings. I don’t have that gift of prescience, though I’m sure some other technician can draw a bunch of lines and boxes and come up with a specific price target for you. Not my deal. I live in the real world, not a fantasy one. Lets just look at it this way: Flag pattern, up about 15 percent. Then a breakout. Look for another 15 percent, I’d say, guess what? Right around the 200-day moving average. So from here I think this has a decent chance of moving another 15 percent even before earnings, at least another 10. Think about it this way: There’s no real catalyst for people to take the other side of your trade. In other words, you’re buying the stock and suddenly it sells off really hard, because earnings are too close. So the stock is moving into earnings. Assume that that move is going to continue until the company reports earnings on Friday. So stay long for another 4 days, and then I would say get out before earnings, because it’s always risky to hold over earnings.
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