| Technical Analysis Upside Breakout Short Term Trades |
|
| Monday, January 15, 2007 |
|
Classic Upside Breakout Patterns - $COMPQ, AXR, MICC, & SNPS
Today, I will discuss and focus on the Classic Upside Breakout Pattern. This Bullish pattern is illustrated in the 4 charts discussed below. The Classic Upside Breakout Pattern consists of a rectangular pattern, and it is also referred to as a Slim Jim pattern. It is generally described as a sideways / lateral consolidation move prior to a breakout to the upside. It is a bullish continuation pattern which follows the primary uptrend.
Please click on the trading journal link provided for you below, in order to print out your trading journal. This way, you can update your trading journal as you read and listen to this update. Using this is a great way to learn how to trade with a trading journal! This is the first step that you need to follow on your path to achieving "sudden profits." This is what is called doing your homework or due diligence on an equity before you enter a trade. You can also use this sheet in the live trading chat room and when you receive a buy alert from John. Remember that a good trader always plans their trades and so should you, because a failure to plan is a plan for failure!
http://www.trending123.com/short-term-trades/trading_journal.htm
Nasdaq Composite Index - ($COMPQ) - Daily Chart in a Upside Breakout Pattern
The daily chart of the $COMPQ illustrates that it has been trading in a wave 3 to wave 4 sideways consolidation pattern called a Slim Jim or a rectangle for the past two months (Holidays). Today, the $COMPQ experienced what is known as a "classic upside breakout" out of the rectangle. This is a bullish signal, and today's move marks the breakout from it's recent trading range to start a new leg in a new uptrend because it also made a new high. Higher highs are bullish because there is no resistance above. Today's breakout out of the trading range to mark a new high in price means that "prices will rise explosively over a period of days or weeks as an almost vertical uptrend appears." In addition, you can see 5 days of heavy buying on increasing volume to support the breakout and validate the up move. If you look at the moving averages you will see that they converge slightly during the consolidation phase and are now beginning to turn upwards along with the breakout. Furthermore, if you look at the indicators and oscillators you will see that, they too, confirm the classic upside breakout pattern. The Aroon indicator is in a 123 bullish trend reversal marked by it's recent cross at the 70 line. The PPO is in a 123 bullish trend reversal and is pointing upwards as are the RSI and stochastic's. The indicators and oscillators are moving up along with price which signals a bullish direction and trend. Therefore, when you look at this bullish chart of the $COMPQ you can determine that the pattern, the trend, the direction, the volume, the indicators and oscillators all confirm the price action which ultimately confirms the bullish upside breakout pattern. You always want to look to these for confirmation of a move and to validate a trade based on technical analysis. The new 52 week high was placed on Friday Jan 12th at 2502.82. Now let us move on an look at similar chart patterns to the COMPQ. These are: AXR, MICC, and SNPS.
Amrep Corp. (AXR) - Daily Chart in Rectangle pattern waiting for an Upside Breakout AXR does not trade options.
The chart of AXR , is similar to that of the $COMPQ before it broke out. The daily chart illustrates that it has been trading in a wave 3 to wave 4 sideways consolidation pattern called a Slim Jim or rectangle for the past two months (Holidays). As you can see by looking at the chart, the moving averages have been holding steady in a flat line and price has held at the 13 day EMA. In the last 2 days heavy volume has come to support the stock at the 13 EMA or thereabout. This surge in buying volume has catapulted the price upwards, and is causing the indicators and oscillators to turn bullish. You can see that the RSI maintains a bullish area above 50. The PPO has maintained bullish divergence and stochastic's are reversing to the upside. The WM% remains in a bullish trend. AXR closed up 2.93% today at $131.90.
Determining a stocks price Objective
When a stock, like AXR, is trading in a rectangle you can determine price target by subtracting the lows of the rectangle from the highs of the rectangle. Thus, $137.00 minus $117.00 gives us the total which is $20. This number in turn, gives us the width of the triangle, which is 20 points. Price target objectives are determined by the width of the geometrical shape that a stock is in. The width we calculated,for AXR, is 20 points. You then add $20.00 to the number $137.00 and you get the total of $157.00 which is the price target objective of the move once AXR has an upside breakout. Write this down on your trading journal sheet.
When to enter a stock for a Short Term trade
There are specific criteria for entering a short term trade. This is when you need to look at a stock's daily resistance, support and pivot point levels. We provide this information for you. It is located in the box above the AXR chart. Now let's apply this information to AXR. The first support level for AXR, which is referred to as S1, is $127.41 and the 2nd support level (S2) is $122.91. The Resistance levels are referred to as R1 and R2. The first level of Resistance is at $135.03 (R1) and the R2 is at $138.15. The Pivot Point is $130.53.
Now if you look at the AXR chart you can see that it closed above pivot on Friday at $131.90 and that it is still trading within the rectangle. Since the stock AXR has not broken out yet, the trigger for entry/buy point is then placed at the pivot price on the following trading day, which is $130.53. However, you want to make sure that on the following trading day, the stock has taken out the previous day's high(of day) first, before placing your buy order at the pivot price. We will discuss this more in the chat room on Monday Jan 15th. Write this information down on your trading journal sheet.
Millicom International Cellular S.A. (MICC) - Daily Chart in Rectangle pattern waiting for an Upside Breakout
The chart of MICC, is similar to that of AXR. The daily chart illustrates that MICC has been trading in a wave 3 to wave 4 sideways consolidation pattern called a Slim Jim or rectangle for the past two months (Holidays). As you can see by looking at the chart, the moving averages have been holding steady in a flat line and price has held at the 13 day EMA. In the last 5 days steady volume has come to support the stock at the 13 EMA ($61.87)or thereabouts. MICC is now trading at $63.59 which is close to the top of the triangle. This steady accumulation has caused the price climb upwards, and is causing the indicators and oscillators to turn bullish. You can see that the RSI maintains a bullish area above 72. The PPO has maintained bullish divergence and stochastic's are reversing to the upside. The WM% remains in a bullish trend. MICC closed up 1.55% and closed above pivot at $63.59.
Synoposys, Inc. (SNPS) - Daily Chart in Rectangle pattern waiting for an Upside Breakout
As with AXR and MICC, SNPS is also trading in a wave 3 to wave 4 sideways consolidation pattern called a Slim Jim or rectangle for the past month. It has been trading in a very tight range, it has been trading in a $1.00 range. This is a classic sign of consolidation. Also remember what refuses to break down often breaks out. As you can see by looking at the chart, the moving averages have been holding steady in a flat line and price has held at the 13 day EMA. In the last 5 days steady volume has come to support the stock at the 13 EMA ($26.71)or thereabouts. SNPS is now trading at $26.97 which is at the top of the triangle. Steady accumulation during the past month has maintained the price range. The indicators and oscillators are starting to turn bullish, but are not yet. They are still in a U shape which is not as bullish as a V shape reversal. We still need confirmation with a breakout above the rectangle on heavy volume, or aback test to the lower part of the rectangle. You can see that the RSI maintains a bullish area above 50. The PPO has maintained bullish divergence and stochastic's are reversing to the upside. The WM% remains in a bullish trend. SNPS closed up +0.07% and closed a hair above pivot at $26.97.
Edited by Daisy
Andrea Victoria Friend aka Daisy
Editorial Assistant for Trending123.com
daisy@trending123.com
| Upside Breakout Classic Pattern |
| |
|
Implication
An Upside Breakout is considered a bullish signal, marking a breakout from a trading range to start a new uptrend.
top
Description
An Upside Breakout occurs when the price of a financial instrument breaks out through the top of a trading range. This technical event indicates that prices will rise explosively over a period of days or weeks as an almost vertical uptrend appears.
top
Trading Considerations
Inbound Trend
The inbound trend is an important characteristic of the pattern. A shallow inbound trend may indicate a period of consolidation before the price move indicated by the pattern begins. Look for an inbound trend that is longer than the duration of the pattern. A good rule of thumb is that the inbound trend should be at least two times the duration of the pattern.
top
Criteria that Supports
Duration of Trading Range
The duration of the trading range for which the breakout occurred can provide an indication of the strength of the breakout. The longer the duration of the trading range the more significant the breakout.
Narrowness of Trading Range
The "narrowness" of the trading range can also be used to gauge the breakout. To determine the narrowness of the trading range compare the upper boundary with the lower boundary of the trading range. If the trading range has a small difference between the upper and lower boundary (making it narrow) then the breakout is considered stronger and more reliable.
Support or Resistance
Look for a region of support or resistance around the target price. A region of price consolidation or a strong Support and Resistance Line at or around the target price is a strong indicator that the price will move to that point.
Moving Average
Prices which quickly move 50% above the 200-day Moving Average strongly support this pattern.
Moving Average Trend
Look at the direction of the Moving Average Trend. For short duration patterns use a 50 day Moving Average, for longer patterns use a 200 day Moving Average. The Moving Average should change direction within the duration of the pattern and should now be heading in the direction indicated by the pattern.
Volume
A strong volume spike on the day of the pattern confirmation is a strong indicator in support of the potential for this pattern. The volume spike should be significantly above the average of the volume for the duration of the pattern. In addition, the volume during the duration of the pattern should be declining on average.
top
Criteria that Refutes
Duration of the Trading Range
The duration of the trading range for which the breakout occurred can provide an indication of the strength of the breakout. The shorter the duration of the trading range the less significant the breakout.
Narrowness of the Trading Range
The "narrowness" of the trading range can also be used to gauge the breakout. To determine the narrowness of the trading range compare the upper boundary with the lower boundary of the trading range. If the trading range has a large difference between the upper and lower boundary (making it wide) then the breakout is considered weaker and less reliable.
No Volume Spike on Confirmation
The lack of a volume spike on the day of the pattern confirmation is an indication that this pattern may not be reliable. In addition, if the volume has remained constant, or was increasing, over the duration of the pattern, then this pattern should be considered less reliable.
Moving Average Trend
Look at the direction of the Moving Average Trend. For short duration patterns use a 50 day Moving Average, for longer patterns use a 200 day Moving Average. A Moving Average that is trending in the opposite direction to that indicated by the pattern is an indication that this pattern is less reliable.
Short Inbound Trend
An inbound trend that is significantly shorter than the pattern duration is an indication that this pattern should be considered less reliable.
PATTERNS AND WAVE STRUCTURE
NASDAQ
STOCK STATS
PIVOT, SUPPORT, RESISTANCE
AXR--DOES NOT TRADE OPTIONS
PIVOT, SUPPORT, RESISTANCE
MICC
PIVOT, SUPPORT, RESISTANCE
SNPS
|
|
