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After breaking out higher from a long consolidation, PESTECH corrected and the volatility puzzled many people. Let's take a look at the charts and see what it is doing.
These kind of quick sell off and bounce up brings back the memory of Hengyuan, where the stock had a quick sell off and then find support at price support and 50 MA. Then it bounces up quickly and trades sideways for awhile.
I will begin the analysis of this stock by referring you to the weekly chart of PESTECH. Its always good to look at the big picture.
As you can see from the weekly chart of PESTECH above, the stock is actually in a very strong long term position. Recently it broke out of a weekly ascending triangle. Which explains why it had a massive move up.
Stocks that break out of a consolidation often corrects back to the top of the consolidation. This is where it is usually a good time to buy the stock.
From a long term point of view, the investor should remain bullish on this stock as long as it can stay above the support area.
The quick sell off and bounce up that you see in PESTECH is because the stock sold off to a strong support area. This is where experienced traders come in to buy the stock for a nice trade.
Let's zoom in more to a daily chart.
The daily chart tells us a bit more of the story of PESTECH. The stock broke out of a daily consolidation box which coincides with a breakout above a weekly ascending triangle. This is often a powerful combination that can send the stock higher for a week or two.
The stock quickly made a double top. This is a bearish divergence kind of double top where the stock makes a higher high and indicators such as the MACD Histogram and the stochastics make a lower high.
I always like to check the indicators for divergence when I see the stock making double tops.
As I said earlier, this sell off reminds me of Hengyuan. Just like Hengyuan, the stock collapsed to the rising 50 MA as well as a price support. This is where it is often a good idea to buy the stock for a quick trade.
The chart above is the 60 min chart of PESTECH.
As you can see, the stock started to roll over and break down when it drop below the 60 min 50 MA. The quick sell off to a support area provided a climactic buy setup for traders. Some traders would have taken off 1/3 or 1/2 of the position off the table at this moment.
As this is a trade that is usually what is practical to do.
For a longer term perspective, if you want to see PESTECH go higher, you need to see it break above the 60 min downtrend line I have drawn.
There are many possibilities under the current circumstances.
The stock might correct again in which case you need to look for a double bottom. Or the stock may drift sideways and then break out of the consolidation and above the 60 min downtrend line to go higher.
It's always good to have a trading strategy and setup before you enter any stock. The initial wave of opportunity has passed. You might want to wait for a 60 min breakout or a double bottom (if it corrects) to enter, otherwise you might be throwing good money away into the drain.
I have covered this stock from as many angle and point of views as possible. From the investor to the trader. I wish I can cover the 15 min charts and 5 min chart of the stocks I analyze but all these move too fast to be beneficial to most people.
Hope this helps.
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