Robinhood Markets, Inc (NASDAQ:HOOD) was trading flat on Wednesday after spiking up about 5% over the course of Monday and Tuesday.
When the slight rise is paired with the 23% plunge between Aug. 16 and Aug. 22, however, Robinhood may be settling into a bear flag pattern on the daily chart.
The bear flag pattern is created with a steep drop lower forming the pole, which is then followed by a consolidation pattern that brings the stock higher between a channel with parallel lines or into a tightening triangle pattern.
- For bullish traders, the "trend is your friend" (until it's not) and the stock may continue to rise upwards within the following channel for a short period of time. Aggressive traders may decide to purchase the stock at the lower trendline and exit the trade at the higher trendline.
- Bearish traders will want to watch for a break down from the lower descending trendline of the flag formation, on high volume, for an entry. When a stock breaks down from a bear flag pattern, the measured move lower is equal to the length of the pole and should be added to the highest price within the flag.
A bear flag is negated when a stock closes a trading day above the upper trendline of the flag pattern, or if the flag rises more than 50% up the length of the pole.
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The Robinhood Chart: During the week’s slight rise, Robinhood has been unable to regain the eight-day exponential moving average (EMA) as support, which indicates the bear flag is intact. If the stock reacts to the pattern and drops under the lower ascending trendline of the flag formation on higher-than-average volume, the measured move could bring Robinhood down toward the $7 mark.
- Although Robinhood negated its uptrend on Aug. 18 by printing a lower low, the stock hasn’t yet printed a lower high to indicate a downtrend is in the cards. If Robinhood breaks down bearishly from the flag pattern, a downtrend will confirm.
- Over the last four trading days, Robinhood has seen decreasing trading volume, which indicates the stock is lacking both buyers and sellers. Decreasing volume is often followed by a large increase in volume, which will either drop Robinhood down through the bear flag or bump the stock up over the eight-day EMA to negate the pattern.
- Robinhood has resistance above at $9.94 and $12.77 and support below at $7.71 and $6.81.
