First published on SharesInvestment website on Monday 10 May 2010. Articles contributed to ‘Trend Spotting’ will be published here 1-2 days later.
Ezra exhibits a bearish reversal pattern called a Double Top. For such a pattern to be valid, chartists look out for 2 conditions.
- A double top must show a distinct ‘M’-shape that must be obvious to the chart reader instantly.
- Price must move below the level established by placing a horizontal line at the valley of the M-shape.
Once the latter phenomenon appears, the double top is considered to be complete and valid. Prior to this condition, price movement may render the double top invalid if it changes path.
In layman terms, Ezra has a 52-week (also 2010) high of S$2.63 reached on 18 January 2010. This level becomes a psychological ceiling or resistance after market players take profit at S$2.57 without attempting to breach in early April.
After price corrects from profit taking, one would expect a floor or support to be found. A most likely level was around S$2.04 as this was a prominent resistance late 2009 and support early 2010. This situation did not arise. Price is now at a new low for 2010 and below the expected support level. What is the implication? The implication is that anxious market participants have to discover the new price support whilst bearish speculators see the new low as a justification to sell into strength.
M spells danger for Ezra
