The high was $1.32, on the descending trendline, and the close was $1.25, within the range of trading for eight of the past nine trading days.
If the triangle develops by the book, then at the apex FNM will break out with a 26¢ increase. The apex is around $1.27, give or take a penny.
The real gotcha is earnings. The upper and lower trendlnies cross on May 6, and FNM announces earnings after the market closes on that day.
My trading rules forbid holding positions through earnings announcements. The chance of an earnings surprise and ensuing gap up or down is just too great.
However, I can also make an argument that FNM is different. Surely any possible negative earnings surprised has been priced into this stock in it's long decline from $68 down to $1.25.
I think the bigger risk for FNM comes in the form of policy surprises. The company is under a government conservator, and if the federales decide at some point to restructure, then current FNM shareholders could be left with nothing.
The government has said that it doesn't intend to force FNM into bankruptcy, true, but survival of the company doesn't necessarily mean survival of the current shares -- just ask GM's former shareholders.
Options as a Strategic Investment is a one-stop source of practical information, clearly presented, about the the trader's most important tool for managing risk. This book occupies an important place on my desk.
This signal will be followed in the daily Watchlist, which is posted beginning around 2:45 p.m. Eastern. Look for it at www.timbovee.com.
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