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My mate Helen recently asked me about a double top setup on Macquarie Group (ASX:MQG) and if you check out the Discussion Forum, you will see the charts she posted. In this article I want to expand on this setup and the various scenarios that could ensue.
Whenever I see a double top or double bottom, I always look to see if it’s on a 50% level or any other price resistance. In Charts 1, 2 and 3, I have shown the double top setup on a ranges resistance card, a highs resistance card and a lows resistance card. You can see that the double tops are at a price cluster of 50% of the range, 50% of the high and 200% of the low. How’s that for price?
Chart 1: Ranges Resistance Card on MQG
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Chart 2: Highs Resistance Card on MQG
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Chart 3: Lows Resistance Card on MQG
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Another thing I look for is for the second of the double tops to be slightly higher than the first. This is occurring more frequently these days as stops that are placed behind the first top are taken out before the market falls again. We aren’t seeing this in the MQG setup but I wouldn’t discount further investigation.
So we have found a double top pattern with price resistance above it, but what should we do next? We could simply wait for an ABC short setup; and while we are waiting, let’s check out the time aspects.
Students at the Gann Jump Start level should conduct a Time Trend Analysis. Using the two weekly turning points (as Helen did in her post) provides some interesting relationships between turns. Conducting the same analysis in Chart 4 using the visual bigger picture turning points of February, 2011, September, 2011, March, 2012 and July, 2012 shows similar relationships. I suggest you work out the ‘percentage retracements in time’ for yourself.
Chart 4: MQG with Time Trend Analysis
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There is not a lot of history for MQG, as the stock code changed from MBL to MQG when the company changed from Macquarie Bank to Macquarie Group. Nevertheless, the available data indicates there has been plenty of good trading on this stock in recent years. The history in Chart 5 shows that late-September turns are not out of the question.
Chart 5: MBL with Previous September Turns
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Trading this setup
If your Trading Plan says you must short a double top on 50%, there was a possible entry on 21 September after a key reversal signal day on the 20th. A one-day first lower swing top (FLST) entry occurred on 26 September, but as I like to see a FLST retrace more than 50% of the first range out, I consider 5 October to be the ‘real’ FLST and I would have entered (or added) on 9 October, after the inside day.
This is a good setup to follow, and to paper-trade at least. Much of the Australian market has run up strongly in recent months, including MQG. If the current double top is taken out, that would be a very strong signal. And conversely, if the double top runs to 200%, we would be approaching the lows of 2009. However, it won’t have to reach 200% to produce some potentially profitable trading.
It’s the Journey
Lauren Jones
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