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With the equity markets still in disarray from the tight global credit environment, many observers will be looking forward to 2009 with continued pessimism. Falling employment, real wages and the subsequent decrease in consumer demand will certainly impact the margins of many listed companies and continue to exert pressure on their share prices. As DividendKey graduates will attest, there are, and have been, some tremendous bargains to be had for the skilled investor. Those looking to invest longer term should never forget that the equity markets are leading indicators and will recover long before the situation improves on “Main Street”. Certainly this will happen long before the popular media cottons on to the next bull run. As ever, now is the ideal time to prepare for this inevitable future, not react to it after it is upon us. Equally the active and skilled trader can expect to enjoy volatility and some excellent opportunities over the next few months by simply relying on those proven trading indicators that served so well in the pull back.
One company that has exhibited a reasonable adherence to some basic technical analysis rules is Brambles (BXB.ASX) and the most recent divergence between the share price pattern and underlying volume would hint that another tradeable move is underway.
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Through September and into early November, it is clear that the share had been making new higher highs (illustrated by the green circles). As the price pierces the upper Bollinger Band and trades towards the upper end of the predominant sideways range (around $9) we become alerted to the possibility of a new upward trend forming or alternatively a place of potential price reversal. A quick look at OBV goes on to insinuate that the second scenario is indeed more likely to eventuate.
The second chart below shows the result of time and the price collapse from around $9 to below $6.50 – a tremendous money making opportunity at the time. Perhaps more interestingly is the set up of the share as it stands at the time of writing (Monday 5th).
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From late November up until the current day, progressive higher bottoms are building an ascending triangle pattern – traditionally a very strong indication of a break out and rally. As before, with the potential uptrend, several things stand to contradict this however. The strong level of resistance at $7.50 and a tag of the upper Bollinger band seem to suggest that price will need to be supported by strong volume (the most important confirmation signal to a break out formation) if the pattern is set to play out. Further investigation of the OBV would strongly intimate that this is not the case. In fact, reading the OBV would seem to imply that the share price is set for a fall; the more likely outcome.
There are some very key and obvious places to place technical stops for this particular set up and some simple positioning sizing techniques will no doubt help any skilled trader put this theory into action as a very respectable trade.
Stay sharp,
John Jeffery
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