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The question was raised just recently by one of our students “AGK has been going up for the past 5 months – is that a long enough trend for me to be looking at taking a Long ABC trade?”
This is a very reasonable question to ask but the answer depends, to an extent, on what your goals are. If you are an investor, you may think that this is an adequate start and that energy shortages in the future will provide a long term bullish market. If you are a day trader you may not care what happened more than several days ago. As a CFD trader looking for tradable moves lasting from several days to several weeks, my starting point is to look for structure in the market I am studying. With the stock symbol AGK, AGL Energy is an integrated energy company supplying electricity and gas to its clients but for this exercise I am going to leave my Fundamental Analysis software in its box and just focus on basic Technical Analysis.
Using the Gann Retracement tool in ProfitSource the monthly chart below examines the significant price pressure points from zero to the All Time High (ATH) in 2006. The first thing we notice is that there is an encouraging level of correlation between the milestones and major turning points. Whilst not perfect in the way that price recently broke the 50% level after an 18 month fall, I see the subsequent strong bounce and the fact that the monthly bar opened and closed on the 50% as an emotional overshoot rather than serious breaking of the support.
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Lastly, seeing that the recent low appears to be finding support on the historic double top at 12.52/12.55 after finding resistance at the 66% level of the ATH, we need to zoom in to the action and see what clues we can find.
The next chart with a weekly bar and weekly swing chart might warm the heart of an options trader but if CFDs are your tool of choice sideways patterns are a great way to lose your financial and psychological capital. From the evidence of the last two years I would not be wanting to be in a trade when the annual results are announced in October. This illustrates why all CFD traders should make it part of their trading plan to check for company report and dividend dates before taking a trade.
There are long and short daily ABC formations in the 2008 price action, some winners and some losers, but a few minutes of examining the daily swing chart will convince most CFD traders that AGK’s volatile price action is sending a strong message – “Trader Beware”.
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For those traders who have learned to adjust their trading plan for different markets and volatile conditions, you can see that we have a potential Double Top formation (or even a declining triple top) under the 66% price resistance level of the ATH.
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Volume has fallen on the second peak so it is looking potentially weak. Using our software shows that we could have a potential short trade price target and a re-test of the powerful 50% support level at about $11.00 but we would need to follow our entry plan and buckle-in for a bumpy journey.
Conversely, a sustained breakout above $14.50 would be a signal to go long with Stop Loss placement under the Double Top price.
At times like this patience can be a virtue.
Learn To Win,
Alard Russell
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