Bull Flag in BX Above 50% Retracement

Blackstone Group, LP (NYSE: BX) broke above resistance and then penetrated the 50% Fibonacci retracement level on strong volume to end last week's trading.  Since then, the Financial asset management stock has consolidated into a traditional bull flag pattern, showing strength to the upside.

BX Daily Chart

What's encouraging about this flag is that it has formed above the strong resistance level marked by the August 2016 peaks.  The top of the flag is at the next resistance level on the chart, however as that will be part of any breakout from the flag, it's not an area with which we are concerned.

It's work noting the multiple bottoms that occurred in January, February, and July.  The flag now sits at the neckline of those bottoms.  The double bottom pattern that completed in October and November reached its target price in the current flagpole surge, and is partly responsible for the consolidation that's formed this flag pattern. 

The RSI(9) oscillator is confirming the bullish trend with a series of rising highs and rising lows that match the highs and lows on the price chart.  That, for the present, is signalling additional strength to the upside.  You'll recall that we primarily use the RSI(9) oscillator for divergence or confirmation patterns, although a cross of the 21 moving average (in red) is also a fairly reliable signal in itself.

What remains to be seen is if the volume pattern is indicative of climactic activity or if will confirm a resumption of the uptrend.  What we are watching for is a close above the flag pattern on high volume.  Our price target on a long position is such a setup is between 31.88 and 32.47, marking the 61.8% to 76.4% extensions of the flagpole.  The 61.8% level sits at another resistance line, so we do have to be cognizant of potential consolidation as price reaches that level.

The stock has a dividend yield of 5.70%, so the prospects of higher interest rates should not impact it for the foreseeable future.  Stocks with a yield closer to 2-3% will experience greater impact as they begin to compete with shorter term bonds that are seen as much safer instruments.

The next earnings announcement is before the open on 26 January 2017, which is well beyond the time frame for any swing trade we may open.  Likewise, we don't anticipate another dividend being recorded before the first week of February.

The single caution flag on the chart is a very strong area of resistance that is a convergence of a horizontal resistance line, the 61.8% retracement line, and the 23.6% extension line.  It's worth noting that the first day of the flag (after the pole top) hit resistance at precisely that location, and it retreated on very high volume.  Whether or not there's still significant supply at that level has yet to be tested, but we do need to be prepared for a swift exit if we stall there again.  A third test of that line may be the one that penetrates, but there's significant downside risk in the interim if we bounce off it on this attempt.  It would be better to exit at that point and wait for that third test before hopping in for the remainder of the ride.

Keep in mind that trading in general will begin to diminish next week, as traders begin to exit for the holidays.  Next Friday marks the start of Christmas weekend, and the holiday is celebrated on Monday the 26th.  Expect lighter than normal volume next Friday as traders turn it into a 4-day weekend. Once this stock triggers the setup, we'll look to be in the trade no more than four days, and want to be out of it before the close on Friday regardless.  The week between Christmas and New Years will be extremely light volume, and that poses a bit more risk to our trading style than we prefer.

Happy Trading.