How to Trade a Pandora Short-Covering Rally

The internet streaming music services company Pandora Media (P) has experienced several notable swings in its stock price since it became a publicly traded company. Recently, shares have been attempting to consolidate in a well-defined pattern that could be a platform for a tradable move higher.

On the weekly chart, Pandora stock can be seen making a series of lower highs and lower lows immediately after its IPO in June 2011, in the process forming a long-term downtrend line. It bottomed in November 2013 and then broke above the downtrend line and its 40-week moving average.

Then the stock began making a series of higher highs and higher lows as it rallied more than 425% percent in the next 16 months to its 2014 high. That level proved unsustainable. Three very high wick candles formed, ending the parabolic run and initiating a reversal that, over the next two years, completely erased the previous gains, taking the share price back down to its 2012 low.

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