Time to tune into Cablevision?
The smaller cable name's stock is forming a bull flag that can carry it higher.
By Adam Beaty
Cablevision Systems (CVC) is a little known company that has come under the spotlight.
Cablevision is smaller than some of the bigger cable names such as Time Warner (TWC), Liberty Media (LMCA) and Comcast (CMCSA). When at the end of June Charter Communications (CHTR) announced it would like to scoop up some of the other cable providers, the news sent cable companies higher -- and Cablevision shares shot up 27% in a week. The talks so far have been mostly static noise since no real deal has been made.
Time Warner has also said it is not looking to sell out to another company. This news, however, was enough to bring in the momentum into Cablevision stock, and now it is forming a bull flag that can carry it higher.
So what is a bull flag?
A momentum stock is a stock that has made a big run in short period of time. The stock will then begin to rest before making another big run.
Remember, when stocks go on big runs, many people are left on the sideline. These stocks gain a lot of attention, which causes people to look for entry points to get in. The bull flag setup gives investors the ability to get in, and knowing how to trade these setups will set you apart from most traders.
Most traders have the ability to spot and trade a horizontal price resistance or support. These are the easy breakouts and breakdowns. However, most traders are not trained to see flags and triangles, and when they do, they are not sure how to trade them.
There are two parts to a bull flag: the flag pole and the flag itself. When a stock goes on a large run, it creates the flagpole. The flag poles are usually straight up, but they don't have to be. The stock will get pushed into overbought territory that lets you know that the run may be over. Once people begin to take their profits, you will get a pullback from the highs.
This gradual pullback will form the flag. You will want the pullback to be formed with low volume. That way you just have traders locking in profits and not dumping all their shares. The perfect flag is formed over three to five days, but flags can be formed over weeks of pulling back.
So how to play this?
Cablevision is setting up with a beautiful bull flag. Investors are seeing a low volume pullback, and the stock is no longer overbought. There are several ways to play a bull flag, but our favorite is an aggressive method. We want to play it as soon as it breaks the trendline.
When looking at Cablevision, our entry on this trade is $19.04, which would be one penny over the trendline. We can keep our stops in the $18.60s, which would be right under the flag. If the flag fails, then we don't want to be long this stock.
Now, a target on this trade is going to be more difficult. This is a relatively new area for it to be trading. Last time it was here, it was crashing down from its IPO.
More from Benzinga
Copyright © 2014 Microsoft. All rights reserved.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.