|
In the article entitled “Brambles – A Thorny Subject” I considered the usefulness of combining On Balance Volume and Bollinger Bands as a simple trading method. The conclusion of the article and the technical indicators was that there was more downside for Brambles (BXB.ASX), which turned out to be an extremely profitable short position. Over the course of the last 10 weeks or so Brambles is again shaping up for another trading opportunity. In this instance however, the path of least resistance for the share looks to be to the upside.
Please note that I currently hold a long position of BXB and have done so for several weeks.
click to enlarge
In early March, Brambles was clearly in a bear trend with consistent lower highs and lower lows easily delineated within a narrow price channel. Despite these lower prices, volume on the positive days (those represented with a close higher than the previous day’s close) was increasing relative to the volume on a negative day (represented with a close lower than the previous day’s close). This could be seen in the rising OBV indicator, revealing the subtle shift in market sentiment towards Brambles. As with all channels, the price is expected to oscillate between the trend line and the return line. A failure to reach the return line (the ‘?’ in the image above) would support the theory that the trend is about to reverse. On the 11th March, BXB started an uptrend, giving a clear entry signal.
As the chart below illustrates, 2 weeks later, that trend was interrupted by a fairly large price movement resulting from a decision by one of Brambles customers to use a competitor’s pallet range. Momentum players pushed the price down even further, forming a new price channel. Once again, however, an observant investor would have been aware of the distinct lack of support given to this new move. OBV was on the rise.
click to enlarge
The final chart shows that the underlying flow indicated by OBV was the dominant driver of price and the uptrend resumed on the 2 of April, with a trend break.
click to enlarge
This brings us to the current day. The rate at which both price and OBV are rising has decreased relative to the previous accelerated return and would concur with a theory that price needs to consolidate before the next major move. Despite this, resistance levels around $6 for BXB and the existing double tops are very much achievable. A push by bulls over the next 2 weeks could see this resistance level tested and, in the event of a breakout, I would expect price to continue rising. Of course, price is currently very close to the upward trend line and has failed to track the return line in the most recent channel price action. A move towards that return line would be coincidental to a break of resistance and a rapid increase in price. Stop loss orders are best placed a multiple of the average true range away from the low or progressively moved under the current trend line.
Stay Sharp,
John Jeffery
|