First published on SharesInvestment website on Monday 03 May 2010. Articles contributed to ‘Trend Spotting’ will be published here 1-2 days later.
In a previous contribution to ‘Trendspotting’, I shared the characteristics of accumulation in a stock using the illustration of STATS Chippac. In that article, four elements were listed.
At the moment, all four elements have emerged in Sunningdale. The outcome: a volume-driven rally with enough power to create a new 52-week high.
- Sunningdale builds a base between September 2009 and late March 2010. A 6-month accumulation is a good time for strong bulls to start hoarding but not long enough for speculators to lose patience and turn elsewhere.
- This accumulation is marked by low trading activity.
- An end to the accumulation comes in the form of a price rally driven by high volume.
- The stock remains in uptrend mode since it has managed to stay above its 200-day moving average, a strong indication preferred by long term investors.
As with all rallies, it is high risk to chase at the height especially since high volume marks the entrance of speculators. Any retracement for more than a week would likely bring about quick profit taking and even margin calls for contra-traders. Therefore it is key to wait for a support to appear.
Sunningdale breakout of high volume after base-building
The 4 elements I mentioned above leave telltale signs in a stock chart. The good news is that anyone can spot them and the time taken to master such a skill is not long. My colleague Binni Ong from TerraSeeds Market Technician and I will be talking about such signs in a coming seminar delivered in Mandarin. It will be run on 16 May 2010 and details can be found here. I hope we can see you there.
