Brookdale Senior Living Inc. (NYSE: BKD)

BKD tries to get thorugh $20

Brookdale Senior Living Inc. is an owner and operator of senior living communities throughout the United States. As of December 31, 2011, the company operated in four business segments: retirement centers, assisted living, continuing care retirement communities and management services. Effective January 13, 2011, the company acquired the underlying real estate interest in 12 assisted living communities that the company previously leased.

To review Brookdale’s stock, please take a look at the 1-year chart of BKD (Brookdale Senior Living, Inc.) below with my added notations:

BKD has been stuck in a sideways Rectangle pattern for the last (3) months. Rectangle patterns form when a stock gets stuck bouncing between a horizontal support and resistance. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern. What’s great about a Rectangle pattern is that it not only provides you with trading points of support & resistance, but it also gives clearly defined breakout & breakdown points. For BKD, the Rectangle pattern has formed a $20 resistance (navy) and a $17 support area (brown), which was also a key resistance level last fall (red).

Chart patterns can also provide price targets. Simply take the height of the overall pattern and add or subtract that amount to or from the breakout or breakdown point to get the minimum price objective. For example, since the Rectangle pattern for BKD is $3 high ($20 – $17), BKD should climb to a minimum of $23 ($20 + $3) if it breaks above $20 or fall to $14 ($17 – $3) if the stock breaks below the $17 level. Chart pattern price targets are certainly not guarantees, but they are often fulfilled.

The Tale of the Tape: BKD has formed a very common chart pattern know as a Rectangle. The possible long positions on BKD would be either on a pullback to $17, or on a breakout above $20. The short opportunities would be at either $20 or on a breakdown below $17. With this type of pattern though, a lot of traders will wait for the break of either the $17 or $20 level before making any trade.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!
Christian Tharp, CMT