I was given a heads up to this stock by someone I follow on Twitter. He had some trend lines drawn on a chart that were crisscrossing and recommend that I watch the resistance and support at the lines he created.
I did my own analysis because I did like the look of this stock. The funny, and good, thing is that I came up with those same resistance and support points he did, just for different reasons. The more ways you are told the same thing, makes what’s being said more legit.
So, I will be watching this to see if my analysis works out.
First I want to see where it is in the grand scheme of things. This is going back to April/July of last year on the weekly chart. It was mulling around accumulating at support around that time. Then in August, or so, it started to move out of accumulation and trended up to a level of distribution, which topped out around October. That defined that upper resistance line.
Then between October and about this June, it distributed in a very wide price range and volatile way. After it broke that resistance out of the distribution trading range, it fell really fast back into, what I think is, another accumulation trading range that is the same as that first one.
I added a volume profile study to the chart just to get a better visual of where all the trading volume was taking place. You can see the areas I highlighted. Heavy volume in a wide range at the top shows the distribution, or supply, area. The other area is much more narrow, but the volume is even bigger in a much smaller area. That shows the accumulation, or demand trading range.
Here is the same chart zoomed in to the area where, I think, it is re-entering an accumulation trading range. I want to apply the Wyckoff method here to see where we are in the phase cycle to help figure out what might happen next.
After the distribution trading range was left, it dropped quickly in that first candle. The second candle is the preliminary support (PS). It is the first sign that selling pressure is finally being absorbed and wholesalers start to step in to accumulate. The next step should be a selling climax (SC). This is a big markdown by the wholesalers to get retail to sell so they can get one last push to buy those selling shares and fill up their inventory. All their buying effort causes an automatic rally (AR) which bounces it back up. The point it goes up to can be marked with a resistance line. The final step is a secondary test (ST). That should be a fall back to, or close to the low of the SC and on decreasing volume.
So as noted above, we have all those elements that make up phase A of the Wyckoff method. What I’m not sure of is where is it in that ST move. The end of the ST move is typically the end of phase A. The spread on the last candle is narrow, and it is on decreasing volume as it should be. However, the volume still seems a little high for a test. Also, if this isn’t the end of the move and it goes below the low of the SC, it will have failed the test and may continue down to find a lower range of demand.
If that is the end of phase A, and we will be entering phase B next week, then the range of phase B is shown between about $1.92 and $1.60, which is the same price range the person I follow said to watch based on his trend line analysis.
So, I will watch this as it develops and update it accordingly.