Known in technical analysis as the broadening formation, the “megaphone pattern” — as traders colloquially refer to it — represents a favorite dynamic to trade. That’s because megaphones don’t offer the most confidence for directional plays but can generally be relied upon to provide wild volatility. And that plays into the hands of the long iron condor.
Specifically, uranium specialist Cameco (CCJ) just printed what appears to be a classic broadening formation. According to the godfather of technical analysis, John J. Murphy, such patterns exhibit successive higher peaks and declining troughs. A violation of the final trough completes the bearish implication. Murphy notes that these formations are difficult to trade and fortunately are relatively rare.
