Weekly Commentary

I'm going to do something little different this week as its a difficult to type properly on a netbook and the sand is a little hot on the feet! Yes, I'm down south taking a little vacation and doing some scuba diving. Nice to be back to Cozumel and do some tropical diving again. Its been a few years since I've been here and its a well deserved holiday.

As I don't have my big computer to do scans and charts on multiple monitors, what I'm going to do is to talk about a recent call I did on Pinetree Capital Ltd. (TSX: PNP) in my November 1st Weekly Technical Picks newsletter, see here, where I said it was forming an Bullish Ascending Triangle and an entry of $1.93 with volume over 790,000. Its amazing how you can start to see things on charts after you've practiced a little and start to recognized these. The first step of course is to understand the basics of charts, how the understand the indicators and overlays but once you have this basic information, you start to move on to the more advanced stuff, if you want to call it that, and notice that when a couple of your favorite stocks all kind of look the same on a chart, there's a prevaling chart pattern to start looking for. I'll talk about more about these chart patterns and formation a little later as I introduce my next project in my educational series.

But for now, here is what I wrote in the newsletter and the original chart.

"Another forming a Bullish Ascending Triangle with good up side potential. On a one year daily chart it looks like a Cup and Handle formation without the handle portion. I don't see this too often. A Cup and Handle formation is one of the more reliable ones and I'm surprised it has not formed. So same caution here as my previous chart. Wait for confirmation of breakout on high volume. In this case, entry would be at $1.93 with volume over 790,000. Initial target $2.08 for gains of 7.7% followed by $2.28 for gains of 18.1%. Stop loss is the same as the previous chart, meaning a close below the lower trend line which right now sits around $1.83."

I really thought this was a Cup and Handle formation when I first looked at it. You can see the volume building up on the right hand side of the cup and when it reached the top of the cup at $1.93 on September 30th, I was sure it was going to start coming down. And it did for the next few days. However, when it moved up and re-tested the top of the cup, it had invalidated the formation in my mind because the handle portion of a Cup and Handle was first too short (the cup portion took 5 months to form) and the drop in share price (handle portion) was not sufficient. It should have gone down to the mid $1.60s, which it didn't. So will argue that a drop of only 10% would have been enough to call this a handle, but then I argue, why did it not break the $1.93 on its second attempt. If it was a real handle portion, the break out should have been on high volume as it tried the second time to break $1.93 but it never passed it (close just at the resistance and pulled the next day). So a shorter term pattern was in effect I thought.

On its second pull from the $1.93 resistance it posted a higher low then the last time. A clear sign this was not the handle forming. So what was it... The answer was not difficult to find. Just plot a trend line from the first pull as it neared $1.93 and then the two subsequent pulls and you have your answer. A Bullish Ascending Triangle with the apex about a week away. I've had a few of these run away on me before they reached the apex so I thought it would be nice to give a heads up on it as it would be a swing play away (5 to 10 days I thought).

The play certainly didn't take that long to start paying out and the Monday it opened with a bang and hit my first target in no time on high volume. Confirmation of this formation needed volume to be over 790,000, we got 1,559,420 that day (twice what was required!). It reached a high of $2.59 on last Tuesday after 7 days and I closed my position at $2.55 for gains of 32.1% just before leaving for vacation.

My next project now that the Fundamentals of Technical Analysis course is completed and starting to sell (thanks to all of you who have bought it), is a series a flash cards that will help you identify chart patterns quickly and it shows you tells you how to trade the pattern. I bought a similar thing a few years ago but it was on regular paper and has had its share of coffee spills on it over the years! So I thought I would do this on sterdy 70lbs cards that are 4" x 6". On the one side will be a large chart formation with just the pattern identified on it, on the flip side is a smaller version of the chart, its pattern name, how to identify the pattern, its success rate and how to trade the pattern. Its a great way to quickly search for chart patterns and the large chart on the one side can be used as a flash card to quiz yourself. The set will have 25 chart pattern and candle stick formation.

Is will make a great stocking suffer for Christmas and I'll even send it to you gift wrapped! All you need to do is fill in the name for who it is (assuming you want to share it!). Drop me an email if you'd like to make sure I don't run out of them. My first run with the printing company is limited to 100. So don't wait, I have a feeling these are going to disappear quickly as I'm going to give these out for $35 a set. Email me at info@ta-picks.com for me to put your name on the list.

Cheers and Happy Trading!
-Claude.