Technical Analysis Lessons From Pentamaster's Stock Chart

In this lesson we will learn and examine why Pentamaster was able to recover all of its losses to start a new uptrend and achieve new highs.

  • Why did it correct?
  • How did it bottom?
  • How did it start a new uptrend?
  • How and why did it make a new high?

We shall endeavor to answer these questions from a technical analysis point of view. It is extremely interesting to me to try and figure out why stocks move the way they do. It is when we learn from history, we may be able to spot the same thing in the future.

Pentamaster is a Malaysian stock. Why do we study this, you may ask?

Well, technical analysis works whether it is a US stock or a British stock. It doesn't matter where the stock resides in. The principles of technical analysis works across all markets around the world.

We are going to look at a few time frames as we look at this stock. The daily time frame, the weekly time frame and the 60 min time frame. This exercise is called multiple time frame analysis.

There are lots of stories and lessons when you look at different time frames. Think of it as looking at a story from different point of views. They often reveal quite a lot about the stock.

The chart above shows the daily chart of Pentamaster. One look at it with lots of annotation will confuse the new technical analyzer. Don't worry, just go through the course in this website and you will begin to understand quite a lot of the annotations.

We will start the explanation from the left hand side of the chart to the right hand.

So first of all, how did Penta topped out?

The answer lies in the climactic move up that eventually formed a double top. You see, stocks do not move up non stop. Sometimes the bullish move is so terrific that it eventually collapses because things are too hot. 

When you look at the rapid rise back in December 2017, you will also notice some climactic volume as the stock rises. This hints of a hot stock that is chased by the public. The smart ones have already entered early.

Climactic volumes or unusual volumes often mark a stock that is chased by too many people. It becomes so hot that eventually everyone who wants to buy has already bought. So if there is no one left buying the stock, who is left to push the price higher?

Nobody.

How Unusual Volume Ends A Move

That is why the stock collapse. The presence of a double top with a topping tail helps to mark the top of the stock. The stock also drops below its 20 MA and 50 MA. Notice how the stock did not perform that well when it is below these moving averages.

In April 2018, there was a huge sell off that made a big red bar on the chart. A big red bar is very negative and should have made the stock continued to go lower. However, the stock did not move lower. 

This is what we call "large red bar ignored". The market ignored the red bearish bar. Instead, a bottoming tail appeared and this mark the bottom of the stock.

Next, the stock broke above a downtrend line. Breaking above a downtrend line can often mark a change in trend. Notice how the stock formed a large bullish bar as it broke above the downtrend line. This told us that the bulls is coming into the stock.

Penta also broke back above its 20 MA and 50 MA and this hinted to a trend change.

Then the stock had a bullish cross that sets up a conducive environment to long stocks. Notice how the stock has managed to set higher lows. This is also a sign of trend change.

The new uptrend was not an easy one as there was some short term sell off. But the stock formed a variation of the cup with handle pattern which helps to send the stock higher.

Next, the stock formed a symmetrical triangle or pennant. You can see this pattern clearer when I show you the 60 min chart below.

Penta broke out of the symmetrical triangle and is currently still riding the wave higher. The good thing about symmetrical triangle is that it can give us a price target. The triangle is considered the middle of the move so, when we extrapolate the previous move up from the tip of the triangle, we can get a possible target.

Let us now take a look at the weekly chart of Penta.

The stock was actually in a long term weekly uptrend. When it sold off, it tried to find support at the first price congestion support which I have labelled Support 1. However, it broke through it. The stock managed to find support at the next support.

Penta then broke back above a downtrend line and went higher.

The MACD and MACD Histogram were helpful to point out the reversal. First, you have a MACD Histogram that shortened, telling investors that the bearish momentum was slowing down. Then you have a bullish MACD buy signal.

Before we end this lesson, let us have a look at the 60 min chart of Pentamaster.

Remember about the symmetrical triangle I told you about earlier? You can see it clearer in this 60 min chart. This is a bullish continuation pattern. Once the stock broke out of the pattern, it continued to move higher.

Besides the symmetrical pattern, there are also box breakouts. This is where the stock breaks out of 60 min consolidations to move higher.

The moving averages are very healthy at the moment. Notice how the stock is trading above its rising 60 min 20 MA, 50 MA and 200 MA. This is a picture of bullish strength. As long as the stock trades above the rising 60 min 20 MA and 50 MA, traders should continue to be bullish on this stock short term.

That's all for this lesson. Hope this helps you to understand a bit more on how stocks move.

For more valuable and insightful technical analysis lessons on individual stocks, go to the Chart Lessons page.

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