GSK: I spy with my little eye .. [possible trend change]
Updated
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?]
Comment
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
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.