GSK: I spy with my little eye .. [possible trend change]
Zaktualizowano
It was Aug 1 and I was looking through the various constituents of my watchlist and I came to GSK [GlaxoSmithKilne] on the FTSE. GSK has been trending down since Jun 22 and I was looking to see how that trend was developing. What I saw caught my attention. The last candle in what was looking to be a fairly well established downtrend was a doji [Aug 1]. Dojis are usually interpreted as something like 'market indecision' or 'the mother-of-all-battles between buyers and sellers ending in a draw'. However dojis are fairly commonplace in charting so it could just be a sign that the market was 'taking a breather'.
The candle put up today [Aug 2] is a possible gamechanger, I believe. It is another doji which in itself is nothing 'special'. However a "double doji" is considered to be fairly rare and has a reasonably good chance of preceding a fairly large change in the price of the share. So here's a fairly spartan chart showing GSK and the idea I believe could be about to play out. It goes something like this:
= Jun 22: A downtrend starts that goes on to establish itself for over a month
= Jul 27: a hammer forms which could be taken as a signal that a trend change could be about to happen. The low of this hammer candlestick is 1517.0 . The downtrend continues.
= Jul 28: A shaven top marubozu forms with a low of 1513.5 and a close of 1518.5
= Aug 1: the first doji forms with an open and close price of 1516.5
= Aug 2 (today): the second doji forms with an open price of 1516.0 and a close price of 1517.0
So there are four seperate candlesticks pointing towards a possible trend change and all seeming to show close S.P.s in the range of 1516.5 - 1518.0 . This is the "bounce" point/zone, I believe. The market is currently showing that it does not want to push the S.P. any lower than 1516.5 - 1518.0 and so this price range could possibly be "the floor" for the S.P.
The second indicator I'm using is stochastics with a setting of %k=5, %d=5 and smoothing=2. This is a setting I saw used on a webinar (by Barry Burns) and seems to be fairly credible. Now if you look at the last few days you can see that %k/%d has been "strengthening" with the last three days showing ratios of 2.9/6.8 , 4.8/5.4 and 16.4/8.1. This, I believe, shows that the strong selling pressure is slowing down. Traders are still selling GSK but not selling it as "eagerly" as before. The last ratio, 16.4/8.1, shows that buying pressure could build up faster than selling pressure and so the direction of S.P. travel should/may change.
So this all points to a pretty strong "Buy" signal, I believe.
Safety first! The lowest S.P. reached by the double doji couplet is 1508.0, so set a stop loss at least 1p down on that at 1507.0. With the current S.P. showing as 1517.0 that risks 10p/share.
Now the upside. As this potential trend change is in response to the downtrend that started on Jun 22 I've drawn the 0%-100% between the close on Jun 22 and the open/close of today. That forms the fib retrace levels labelled on the right of the chart. You can see that there is a 38.2% (major?) retrace level at 1595.1. The top trendline shows an S.P. for today of (around) 1592 so very close to the 38.2% retrace level.
Working with all this I'm going for a strong "Buy" with a trailing stop initially of 10p and a first target of 1595.1. This gives a potential reward of 78p, so I think this works out a a risk/reward ratio of 10/78.
[I haven't done any pivot point analysis. Is this necessary with fib retraces?]
The candle put up today [Aug 2] is a possible gamechanger, I believe. It is another doji which in itself is nothing 'special'. However a "double doji" is considered to be fairly rare and has a reasonably good chance of preceding a fairly large change in the price of the share. So here's a fairly spartan chart showing GSK and the idea I believe could be about to play out. It goes something like this:
= Jun 22: A downtrend starts that goes on to establish itself for over a month
= Jul 27: a hammer forms which could be taken as a signal that a trend change could be about to happen. The low of this hammer candlestick is 1517.0 . The downtrend continues.
= Jul 28: A shaven top marubozu forms with a low of 1513.5 and a close of 1518.5
= Aug 1: the first doji forms with an open and close price of 1516.5
= Aug 2 (today): the second doji forms with an open price of 1516.0 and a close price of 1517.0
So there are four seperate candlesticks pointing towards a possible trend change and all seeming to show close S.P.s in the range of 1516.5 - 1518.0 . This is the "bounce" point/zone, I believe. The market is currently showing that it does not want to push the S.P. any lower than 1516.5 - 1518.0 and so this price range could possibly be "the floor" for the S.P.
The second indicator I'm using is stochastics with a setting of %k=5, %d=5 and smoothing=2. This is a setting I saw used on a webinar (by Barry Burns) and seems to be fairly credible. Now if you look at the last few days you can see that %k/%d has been "strengthening" with the last three days showing ratios of 2.9/6.8 , 4.8/5.4 and 16.4/8.1. This, I believe, shows that the strong selling pressure is slowing down. Traders are still selling GSK but not selling it as "eagerly" as before. The last ratio, 16.4/8.1, shows that buying pressure could build up faster than selling pressure and so the direction of S.P. travel should/may change.
So this all points to a pretty strong "Buy" signal, I believe.
Safety first! The lowest S.P. reached by the double doji couplet is 1508.0, so set a stop loss at least 1p down on that at 1507.0. With the current S.P. showing as 1517.0 that risks 10p/share.
Now the upside. As this potential trend change is in response to the downtrend that started on Jun 22 I've drawn the 0%-100% between the close on Jun 22 and the open/close of today. That forms the fib retrace levels labelled on the right of the chart. You can see that there is a 38.2% (major?) retrace level at 1595.1. The top trendline shows an S.P. for today of (around) 1592 so very close to the 38.2% retrace level.
Working with all this I'm going for a strong "Buy" with a trailing stop initially of 10p and a first target of 1595.1. This gives a potential reward of 78p, so I think this works out a a risk/reward ratio of 10/78.
[I haven't done any pivot point analysis. Is this necessary with fib retraces?]
Komentarz
Aug 4 (update): Well that seems to have gone alright. A fairly chaotic morning with the S.P. bouncing around all over. It took the US market opening to settle down a bit and start to climb (or so it seems). Even then healthy price appreciation seems to have only lasted for about 1.5 hours before a fair bit of profit taking/closing positions seems to have happened.EOD: close S.P.: 1528.0 (+11p on last note), High S.P. 1538.0
With a "start" S.P. from the previous day of 1516.0 that gives an EOD profit of 12p/share or +0.78%. Not too shabby.
With that going on I feel it safe to tick to a primary price target of around 1592
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