This article was first posted on SharesInvestment on 12 July 2010.

Hotel Properties Ltd has emerged from a 10-month long consolidation. Price made a new 52-week high last month and is considered a bullish development especially since it is above all of its moving averages.

The chart shows a horizontal base-building period from September 2009 to June 2010. During this time, price traded between $1.97 and $2.50.  Each period of rally was accompanied by high volume while low volume matched price decline. This is a suggestion that there might be accumulation. Price break out in June to new validates this observation.

With the June rally behind, price retraced to the $2.50 region. Bullish investors who were left out of the rally will be looking for entry levels. Look at this level keenly because here technical  traders expect the former resistance to become support. Price has to stay above $2.50 to remain bullish.

Be careful though, a dip could take price to mid-April high as well. And if it goes down a lot further, then the brief fling above $2.50 (hypothetical) will become just an act of distribution.

HPL moves out of range

Breakouts are popular among traders. However they can be so punishing if you get it wrong. Why? For the fact that buy high to sell higher means that you have bought at the worst price if you are wrong. And because false breaks are really common.

Well AUDUSD is at this point. Break or fade?

AUDUSD bullish breakout or fade-out

For bulls to play the break, look for a bull flag on the 4-hour chart that builds base at the yellow zone. Such a consolidation will allow late bulls to find low risk entry points for going long.

For bears to play the fade, 1. get a reversal candlestick pattern on day chart or 2. wait for reversal chart pattern on lower time-frames.

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.

1. 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.
2. This accumulation is marked by low trading activity.
3. An end to the accumulation comes in the form of a price rally driven by high volume.
4. 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.

First published on SharesInvestment website on Monday 26 April 2010. Articles contributed to ‘Trend Spotting’ will be published here 1-2 days later.

At the moment, BH Global is trading within a horizontal channel that goes back to September 2009. This was however not so evident a week ago. In fact, it is conceivable that contra-traders might have jumped into a bullish ‘breakout’ scenario on the 14 April 2010.

By now, anyone intending for a quick contra trade would be feeling tense. Two choices are likely: pay up in hope for a rally or sell at a loss.

Let’s recall.

1. On 12 and 13 April, price of BH Global stuck to a downward trendline shown in my chart as a thin brown dotted line. This line acts as resistance. If the line is broken with high trading volume and strong rallying price, experienced traders would see it as a ‘breakout’.
2. On 14 April (point 1 in chart), price erupted over the top. A classical breakout takes place. ‘Breakouts’ are known to attract speculators who jump in to ride upward momentum in a short-term trade. Many are likely to make use of contra-trading rules to speculate without paying up. The same group is required to pay up or square their position in anything from 3 – 7 days depending on trading arrangements they make with their broker. The entry of speculators contributes to the sharp volume visible.
3. Unfortunately, a ceiling exists at 37 cents (point 2). This is the high of mid-September 2009. Such a ceiling or resistance creates a selling pressure from profit-taking. Price was unable to sustain itself above 37 cents on 14 and 15 April. The breakout bangs intoa ceiling.
4. As a result of retracement, profit-taking and margin calls, weak contra-traders who are unable to pay up are being squeezed out. 23 April is exactly T+7 day from the breakout day.

Breakouts are dangerous and rely on momentum to be sustained. They are fraught with danger because there are false breaks and there are breaks that throw back to the previous resistance. This is the latter. Contra-traders caught in such a predicament can only hope that the previous breakout trendline (point 3) becomes a support so that price does not fall lower or a price rally before they are forced to sell.

BH Global in retracement; contra-traders in at high feel heat

Today, we shall excite ourselves by looking at one of the most volatile currency pairs, GBP/JPY, which has a daily average fluctuation of about 300 pips.

In addition, we shall see how 3 chart patterns that is very evident on GBP/JPY for trend reversal and trend continuation – namely, rising wedge pattern, pennant and  symmetrical triangle pattern.

GBPJPY Weekly Chart with Chart Patterns

As shown on the chart above, the Bearish Trend Reversal started with the rising wedge formation, which later evolves into the famous Head and Shoulder pattern hinting towards a big bearish reversal move underway.

Afterwhich, every subsequent retracement of the downtrend has either a rising wedge pattern or a bear pennant pattern.

Thus, it goes to show that there is a high reliability of trend continuation when either patterns had formed.

As we observed the recent months, that there is a big rising wedge formation which seems to be forming since 2009, and a symmetrical triangle forming shortly.

As price draws nearer to the apex of the symmetrical triangle, a breakout is inevitable. Yet, will it be a another trend continuation or a bullish reversal?

Should it break out of the pattern to the bullish side, then more bullish sentiment will be added to the equation as many traders will be eyeing for trading the breakout.

Likewise for the breakout to the bearish side, whereby more shorts will be added too.

Whichever the breakout is to be, it will likely to be a big move, so it is worth keeping tabs with this volatile pair in the coming future.

Chart patterns provide a good way to figure out the direction of the market. A good chart pattern offers the following clues to the trader:

• Hint of market direction
• Criteria for confirmation
• Early trade signal

All in all, its qualities are predictive, pre-emptive.

Let’s look at Aussie this 2 weeks to see if clues were left for traders.

From left to right:

1. Week 49 printed a ‘Head and Shoulder’ formation (solid blue line); this is a strong hint of a bearish reversal.
2. Neckline (A) provided the confirmation of the H & S formation which acted as a pullback resistance at point (1).
3. By Friday 04 December, a more obvious H & S formation was formed with the adoption of the dotted dark blue line;  confirmation provided by neckline (B).
4. Tuesday and Wednesday of Week 50 printed a Double Bottom formation; confirmation came on Thursday with the break of the horizontal resistance (C).
5. Rather than play ‘breakout’, point (3) was a very good throwback level to go long at support.

What to look out for next week?

A horizontal channel reveals levels support at [E] that has broken on the down side. So the opening move of Week 51 could be a test of resistance at [E] and support at [F]. Price takes the path of least resistance so the integrity of both levels may provide clues for the middle of the week to come.

Aussie Dollar chart patterns

1.6660 ~ proves to be elusive for the Sterling. A 3-day fling in early November adds another failed breakout to that level based on the daily chart. For now, traders have found a support in the 1-hour chart so there might be another attempt.

Daily chart

Support