Hi, Thanks for these posts, quite educative. Just curious, why doesnt this chart (For Mindtree) interest you vs. say TechM?
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Coz of some fundamental issues
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This is my understanding:
The chart is a diagrammatic representation of time, price and volume as key variables. Astute investors attempt to find out patterns in hope that they will continue. Why such optimism? Simple, behavioural finance deals with humans and humans exhibit standard behaviour in many respect largely due to biases and habits coupled with standard usage of left side of brain. To some pattern looked like saucer, cup to some like W, some said dotted lines. Basically, what I have realised is one identify an economical behaviour (either purely through technical data or combination of fundamental and technical data), second a repeatable pattern.
Take the case of Cup and Handle:
This draws power from two aspects a. A momentum stock which is already in motion is expected to continue in same direction b. continuous involvement of large buyers and sellers which demonstrate classic nature of demand and supply. What does this translate:
- The stock’s primary trend should up.
- It should have demonstrated some momentum like 20-30-50% in last 1/3/6 Months.
- Once a big buyer buys volume spikes only to pullback at lower volume and lower volatility or contraction. The breakout to tight contraction formed a base. The last leg contraction point becomes extremely tight with thin volume which is called handle. Speculation never rests, hence tight range will never last forever.
- In contraction process every squeeze in price flushes out the so called weaker hands.
- This contraction comes to an end with another breakout beyond pivot point to next base.
Take your example of Caplin, this is how I look at:
Primary trend: Stage 3 (Up trend with multiple resistances) Base Count 5
This is a late stage base stock; most stocks demonstrate 5/6 bases in a primary trend. I will not be interested in late base stock from a pure technical perspective.
Now let’s focus on current state:
Since last breakout 0n 05 Jul 2017 stock is consolidating. Is this consolidation constructive or forming a pattern?
a. From a high of 767 stocks contracted to 654 i.e. around 15%. Again from 784 to it contracted to 641 (18% or so). Actually, there is no contraction at this stage.
b. Look for later stages, 738 to 643 (12%), 717 to 660 (8%) Perfect contraction was in progress, perhaps a situation for cup and handle till Oct 17. Watch for volumes, every price rise with high volume is met by low volume pullback rally. Classic constructive pattern, pure economics of demand and supply in place.
c. Around middle of November here or four days shake out in base turned to a downward movement since then till Dec 17. Post which stock lost its base with violent shakeouts around Jan middle to Feb first week.
So, what can be made out from this chart:
It’s at best in consolidation without a constructive pattern with a depth of 34% around since last 5 months or so. I would be more interested at a price higher than pivot (in this case high price of consolidation) around 784. Better situation technically would be stock corrects a bit with a stage 4 before starting a series of new base.
Further: price strength is weak, hardly any momentum is there for now. Minus 3.33% for 1 Month, Minus 9.15% for 3 Month. Though I like accumulation patterns here (large volume up with low volume down). I will keep in watch list till the time momentum picks up.
Fun is when we add a S curve with Bell Curve meaning say Price is a variable going up but why? Who is driving? Early adaptors, late majority or laggards? We can use fundamental at different bases to see what was the reaction to price.
See the changes in quarterly earnings of Earnings:
Dec 17- Dec 16: 57%
Sep 17-Sep 16: 688%
Jun 17- Jun 16: 125%
If you see result date i.e. say 07 Feb and 09 Nov stock was trying to breakout with low volume. This indicates big buyers have hardly participated in published growth. Either their forecasting was having included this growth and they are waiting for next forecasting. OR general market direction including liquidity is holding them back.
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I think few basic tenets would be helpful to augment your hard work and self-less effort here.
As a Cup and Handle belongs to the house of constructive patterns:
- To form an up trend there must be some momentum to make it step wise and wave wise upward movement.
- A base (Cup here) is formed with corrections to momentum. While a correction is a basic necessity but over correction works against you. Say a correction of 50% in base, unlikely to work. Why? Mathematics geometrically work against you; 50% loss requires 100% recovery. Probability of success goes down to the wire. Look for base correction between 15-35% or even tighter.
- For a constructive pattern to form time is an essence, do not expect a cup/base to form constructively in 5 days. This will have too little time to absorb contraction process meaning selling at lower volume and again a recovery till every undecided buyers and sellers flushed. A healthy base should be at least 6 weeks or more.
- Few days of shakeout meaning breaking down of base temporarily is perfectly healthy. This removes those panic guys sitting on fence. But key is ability to rebound, if post shakeout stock is not able to rebound it indicates lack of buyer support.
- Handle is last stage of contraction with minimum depth (maximum 10-12%) with thin volume. This should indicate initiative buyers that stock has flushed all weak hands for now. These are mostly the investors who bought at late stage and desperate seeing losses. They just want to get out at as low as losses!
- Handle may not form for all cases. If the late stage buyers do not have a loss which is intolerable (say like 8-10%) they may hang on due to either stop loss or capital protection what ever may be the case. Watch out for low depth base or cup, many of them either do not have a handle or a short handle.
An example Cup and Handle in my eyes: IZMO
The length of Cup is around 70-72 days, handle is between 6-8 days. The depth of cup is 37%.
Let’s check what’s happening within the base:
In the first wave stock corrected from 84 to 55 i.e. around 34%. During second wave it corrected from 71 to 61 i.e around 14%. In the last wave of base correction was from 70 to 65, around 7%. Now look at the handle stage, 80 to 74, a bare correction 6-7%. Stock contracted wave wise from 34% to 14% to 7% with finally late buyers exit at 6%.
See the volume, a series of big volume spikes with price rise when cup started. As wave progress volume become lower and lower. Watch the last day of handle i.e. 02/01/2018, volume is at lowest almost needle. On 03 Jan stock breakout from tight contraction with a volume double than average. Ideally I could have entered at around 81, (pivot point). But do note stock squatted later on, it could have triggered stop loss.
A successful cup and handle: Goa Carbon
Length was around 40 days (32% depth) with a 5/6 days handle. Contraction took place from 28% to 17% to 8%.
A breakout beyond pivot of 384 would have taken stock to another 3 bases i.e. around 1030. You will find same volume and price contraction during base forming stage.
Disclaimer: historical examples, exercise caution before adopting. Nothing works in isolation, general market direction and money management will influence every decision.
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Wonderful reproduction of a concept, this is an abstract using fractals. No wonder Ken Fisher is a legend. This picture depicts how to use discretionary system for investing while using decision support system through visual and analytical patterns at same time.
In a short when you use a S shape curve like Price, Volume (technical) or revenue, margins (fundamental) to a bell curve say like crowd (traders, investors, management). It activates whole right brain.
Wondering, did you work on this concept? And what are the outcomes? In case yes, have you used market forces or only fundamentals?
I am attempting to be genuine student of fractal or chaos, though far away from there. If you have worked on, would be delighted to solicit your learning if you are ok.
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Typical reversal patterns in National Aluminium
Intraday chart shows typical sell off at lower levels around 65, cup and handle pattern after sell off and breakout with good volumes.
This intraday chart needs to be seen with EOD chart of NALCO that shows a possible reversal.
On intraday chart cup and handle pattern is repeated with breakout with surging volumes
Disclosure: I have entered at current levels.
Long term monthly chart of GSFC
The chart shows a long term bullish pattern with intermediate term downtrend. What is the likely target of the downtrend? @Capsule91 would you please throw some light?
I am interested in following the stock and enter at the end of downtrend.
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Longer term weekly chart of National aluminium shows a upward tilted cup and handle pattern which seems to have failed. There was also a flag which formed in the handle and whose breakout targets were 105 plus but stock reversed from 97.
I had bought earlier around 70 on flag breakout but sold out half on the way up and rest on way down around 77 when I realised that the pattern was not working out.
The recent correction seems to be in form of an a-b-c correction unfolding.
PFA chart.
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NALCO chart compared with LME aluminium prices
Hitesh Bhai has given a good technical analysis of NALCO chart. I just want to add that the tops of bottoms of NALCO chart on 1 Nov, 17 (97 rupees), 12 Dec, 17 (75 rupees), and 4 Jan 18 (86 rupees) exactly correspond to the aluminium prices on LME (A, B, and C in the chart given below). The LME aluminium prices have corrected upwards since. This leaves some scope for change in the direction of NALCO prices.
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Sir isnt the current down trend on a head and shoulder pattern to attribute?? If not, y?
Very good one @Capsule91 . Mindtree gave a good breakout today.
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Here is my interpretation from different parameters…
1.The Channel… (Daily chart; log scale)
The price action was maintaining this channel from the past 11 months, but do not the continuous divergence of the price and the momentum indicator though out the channel, and in the last two highs, the momentum diverged grossly inspite of the price forming the last peak same as the second last but with comparatively lesser momentum and volume…
A double top!
the channel and the double top was broken on 2nd feb along with the global sell off , as the massive break was due to a macro effect, the optimism was still there to get back in the channel, but the neckline of the double top and the channel rejected the price and the current downtrend started on the back of a 11 month price momentum divergence and a very recent double top…
Assessment… Trend bearish
2.The ichimoku clouds (weeklychart ;log scale )
With the base and conversion line intersecting, if the blue line crosses the brown and moves down , this is the first trigger of a proper downtrend, but this signal though fast but very inaccurate
The lagging line (pink one) has intersected the price action, if the intersection happens with the pink line moving downwards that is the strongest signal of a downtrend but appears late…
IF the down trend happens the price action will get a support at the lower margin of the cloud around 114, if that dosent hold, a big down trend may get triggered…
If the present upper margin of the could which is being tested by the price action reflects the price or if this margin is broken and the lower margin gives support , then a consolidation/sidemarket/uptrend may happen…
Overall assessment… Bearish/ at decision point
3.Fibonacci levels… (weekly chart;log scale)
this is a past 6 months trend based fibonacci assessment
Immediate support 125>114 (most critical support) >100-99
Immediate resistance 132.5 (most critical resistance) >138.3>144.5
- The story behind the current trend is bitter sweet… (weekly chart; log scale)
And it started from 2015 with cup and handle (exactly why i chose to discuss this in details in this thread)
**
[Correction in the text of the picture… Price making higher highs, momentum indicator making higher lows, price making higher lows, momentum making lower low-Divergence!]
**
Classical pattern but the cup was a bit too deep at 40percent fall and a classical handle and then a classical breakout to 85percent upmove, but that is the sweet part, the bitter part is after the breakout from cup and handle form, the uptrend was weak, thoughout the while diverging from the momentum indicator, a reversal had to happen but somehow the bull market of 2017 was dragging the price… And finally the last knife was from the February sell off, which broke the channel and trendline and when the price struggled to get back in the race the channel rejected it and now punished with a downtrend at the back of a double top on the daily pattern…
How ever it although a bearish hold is likely , but coming few weeks will be crucial for the medium term at least when the upper margin of the ichimoku cloud is being tested, and unless 114 which represents the lowest margin of the cloud is not broken convincingly a clear bear trend cannot be said…
132-114 is the decision point, and breakout from this level will be the next signal to be analysed…
Disclaimer… This is not a recommendation to buy sell or hold, this was for demonstration only, @Agarwala i would not like to know what was you entry point, but i hope my assessment was beneficial to you, please analyse yourself and decide according to your assumption …
All the best…
Not interested in gsfc Or invested
I am not aware of rhe fundamentals of gsfc expect the fact gnfc where it has 41pc stake had a great 2017 and fertilizer business is suffering with pathetic margins in gnfc…
Gsfc has one of the typical charts where i have nightmares, the basic structure is very weak…
NB:Used rsi with 30 parameter, so depress the spike signals for better assessment
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Wow this is nyc to see cups playing out!! Will be interesting to watch the breakout amongst all the turbulance of the market
This is my rebut to a previous cup and handle pattern which i posted but with suspicion
While fellow member @PE_Ratio did notify me there is a breakout happening i gave a long hard look into the cup and handle a found some interesting things…
While the pattern may look like a cup but there was too much intracup disturbances in the base and the cup was too deep at 73% from the top…
Here is why it may not be a proper breakout…
- there was a Bullish bat at the base of the cup during april to aug…
3.The bullish bat was followed by a price momentum divergence which confirms the bat and a impressive run up started to 85%, but gets caught in a price momentum divergence
4.Here is the whole cup and the bat
5**.Here is the picture of the break out @PE_Ratio mentioned**
6.Why it cam be a break out?
Ans-symmetrical triangle just broke out already
Why it can be a failed breakout?
Ans-Breakout is happening with lesser momentum and there is price momentum divergence
Final: I think although this is a breakout already out of the cup and handle , since the cup was too deep and sloppy, the breakout wont trigger a strong uprun as the uprun has started with a divergence of momentum… Still it will b interesting to see what happens next… A post to be continued…!
Thanks @PE_Ratio
Disclaimer…Not invested or interested , just for experimental observation
Ps… i love the Bat, Butterfly, Gartley, Crab and Shark patterns too much, hopefully will start a thread on them later , meanwhile if anyone else is interested may start this kind of thread i will contribute later…!
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Well formed AB = CD pattern in NALCO chart
NALCO chart shows a well defined AB = CD pattern in daily chart. Line AB is nearly equal to CD in the chart. This may mean potential reversal from the current levels. There was a sell off at 65 levels that I have already posted in the intraday chart in earlier post. After the sell off a bull candle has formed in the daily chart, further increasing the possibility of a reversal from current levels.
This AB = CD pattern can be extended backwards and it forms a bullish bat pattern. The low point is that B point is at 0.618 retracement level of XA, while the comfortable level is up to 0.5.
Possible reversal point is 69.2 (AB = CD pattern) and 66.14 by Bullish Bat pattern.
@Capsule91, Thanks for a very comprehensive analysis of GSFC chart. I had entered at 125 and exited at 136 levels on the result day. I am keeping GSFC under a scanner. This thread has given me a stimulus to sharpen my technical skills. Thanks again @Capsule91, your observations are welcome.
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@Agarwala hi again…
Forgive me but i feel your abdc pattern is not quite corrcet…
I use only candle sticks because the greats in harmonics do so, you have taken mid point of B candle, which is wrong, even though its a doji/spinning top, so you have to consider the ultimate low… So your D is not complete yet… Also bc is at .707 ratio, you used to middle of the candle and u got .631, ideally it should be .618, but since the reversal marubozu candle formed just above 0.618 its ok… i am getting 0.707… dosent matter…
But the D point should form at reciprocal ratio of 1.618, even if there is more downtrend after the 1.618 level you wont consider that ans the d ends at 1.618…
So you abcd is going to complete at 59.09 and PRZ is between 1.618(primary ratio) and 0.886 (primary derived ratio) fibonacci levels…
So similarly you bat is not a bat because the B point crosses the .618 mark , while at this point it could also be a gartley , but in gartley the ab=cd symmetry is not maintained ab at 0.701 or .707 and cd is at 1.34 fibonacci ratio at the last low…(0.618=1.618 is the rule and is the single most critical defining point of gartley) (if variations occur 0.707=1.4)
So basically this is a deep crab pattern in formation if there is more correction or else just the abcd pattern or a gartley…
In practice i believe none of this matters, if a xabcd pattern forms , then we have to know whether its bullish or bearish… Then we have to find the entry point according to Potential Reversal Zone which is different for different patterns, once the reversal happens in this PRZ that is the entry point,… there is no point in defining patterns as all this is academic only, except the PRZ calculation…
And thanks for the appreciation , i feel technical analysis is a world of its own with so much of user variations… Predicting the uncertainty has always attracted human minds and we will always disagree as we did in this post, but the argument is vital and thats where the introspection starts…
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@Capsule91 thanks a lot for your frank response. I welcome your criticism. I agree that in making bullish bat pattern, I have been unorthodox. However, I completely disagree with your B point that I am sure is the low of 13th December candle—and not the low of 18th December doji. Try to make a trendline, and you will understand my point. Bats, butterflies, crabs, and ABCD patterns, they are all studying trends and broad guidelines that we use for defining trendlines must be applicable here also. This is particularly because, there are no particular guidelines given by Carney in his book on Harmonics. For your ready reference, I have reproduced the chart here.
I have redrawn ABCD pattern again and potential reversal is at around 67. Another point that I want to make is that BC projection should always be accurately calculated by the formula
BC Projection = 1/ C point retracement. And therefore I have used 1.529 BC projection for 0.654 C point retracement.
Below is a chart from Carney’s book. In that chart exact points of candles have not been used by Carney (page 101, Volume 1). This is in relation to Gartley pattern.
I will reiterate that you have started a nice thread, and my aim is to let it going while all of us learn and possibly earn. Thank you . . .
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Ashok Leyland Ltd.
1.Case History in weekly chart
2. Double bottom and a updrive…
3.Cup and handle without classical vol changes but with momentum changes… Also the cup is at perfect 33% depth and there is a upward looking handle…
Interesting case for follow up
Disclaimer… not invested
Bajaj Auto Rounding top on weekly chart since september
Interesting to observe
Disclaimer… not invested
Ok… @Agarwala , tell me something, if i am not taking fibonacci numbers while forming the AB=CD parallelogram, is it still valid??
Otherwise, i can take any numbers and form the abcd format just by calculating C point and inversing it…
From what i understood, in case of abcd the fibonacci numbers are very strict…
Otherwise the structure is invalid
But incase of crab and gartley where the ab=cd is required but the reciprocal relationship must be there between C point and Bc projection is the most imp not the fibonacci numbers …
THis is actually debatable as the book mentions only the perfect case scenarios but not the variations and how to judge while variations occur…
See this example from ashok leyland, the same case i was discussing 2 posts before, i rejected the AB=CD not because the bearish pattern didnt work, but the ratios are not fibonacci numbers…
I feel we cant be so hell bent on the harmonics, that it has to form everytime when a xabcd or abcd forms, the magic of abcd i feel happens when the fib numbers happen…
I took that bottom in your NaLcO because the author does so, and does not follow trend lines…and it was also making sense as i as getting 0.707 a complemetary derived ratio (0.707 = Square root of 0.50 ; 0.5 being another complementary derived ratio of the fibonacci series)…
Disclaimer… i am also new to harmonics , so my opinions are mainly textbookish rather than traded experiences