Morning Goblin
I had been holding off posting an update on Talga's chart because until recently I was of the view the share price was languishing with no clear indication of where it might be headed. Trading over the past month has altered my thinking and I am now seeing more clearly a signal that the share price could well be on the move again in the coming weeks. No guarantees of course, I shall endeavour to spell the story out below.
The first two charts are point and figure charts that chop out a lot of "noise" and thus show large patterns more clearly.
Let's start with the big picture and look at a graph of Talga's share price movements dating back to when it was first listed.
Two features stand out, the sideways trading channel that ran from 2014 until October last year and the pennant formation that has been developing over the past nine months. First, the "textbook" breakout target from the channel was $1.79 (93 + (93 - 17)) i.e. we add the price movement in the channel to the top of the channel. As you can see, Mr Market overshot the target and then began a nine month period of consolidation. Second, the "textbook" upside price target from the pennant is roughly $2.70 to $2.80 and we arrive at that by adding the height of the flagpole ($1.30) to the breakout point which at this stage we don't know but if it occurs looks as though it could be somewhere around $1.40 to $1.50.
A third feature, if we can call it that, is the orange horizontal line I added to mark the $1.45 cap raise price.
A pennant formation in an uptrend is a very strong continuation signal.
Let's now have a closer look at the pennant to see what's going on.
The first question to ask is, is it a pennant? A pennant must have a minimum of five points of contact with its boundary lines, two on one and three on the other.
The second question is, is it a strong, medium or weak formation. In a strong formation the upper boundary is horizontal indicating buyer strength, while in a weak formation the lower boundary is horizontal indicating sellers are increasingly holding the share price down. A quick look at the formation on Talga's chart tells us it is somewhere in the middle tending toward weakness as most of the contact is on the bottom.
We can also see that the formation is centred around the cap raise price. Perhaps that is pure co-incidence. Unfortunately the chart cannot answer that question.
The third question is, what's going to happen next and are there any signals inside the pennant that might provide a clue? The answer is yes, two.
Just to the right of the middle you can see a double top marked by a thin orange line that looks to be part of an inverted head and shoulders formation. That formation would have been completed had the share price dropped to $1.13 at which point we would have expected a recovery to around $2.40 (1.79 + (1.79 - 1.13)). The incomplete down leg on the right hand side on June 28 coincides exactly with Talga's announcement regarding the continuation of the LOI with LKAB and Mitsui. A slightly lopsided formation can still be a guide to where a stock will go next.
The second pointer is the last green bar and short red bar that follows. The green bar is 13 cents high so if there is a move higher from Friday's close we could be looking at a move into the high $1.50s possibly $1.60.
Such a move would be significant because it would take the share price to the top of the pennant formation and signal a potential breakout.
Now let's have a look at Talga's weekly candlestick chart.
Again, a very clear pennant has formed after a long grind upwards. The breakout target remains the same in the high twos.
A very strong long term buy signal appeared on August 4 last year when the share price was around 50 cents and the 21 day MMA moved above the 100 day MMA which in turn moved above the 200 day MMA.
Inside the formation we can see that the last six weekly candlesticks are all trending higher while last Friday's ended strongly.
Below is Talga's monthly candlestick chart which largely mirrors the weekly but implies we might have a wait until the share price kicks above $1.70.
Talga's daily candlestick chart confirms short term sentiment is improving and appears set to improve further.
While Thursday's green spinning top signalled a strong improvement in support it also indicated indecision as the share price finished in the middle of the day's trading range. Yesterday's green candle tells a more positive story, despite sellers pushing the price down below Thursday's trading range, buyers responded by pushing the price back up to close near the day's high and above Thursday's close.
Below is Talga's five minute chart for the past 120 hours providing insight into recent intra-day trading..
Again, the chart shows a strong upturn in sentiment. That said, punters have tapped out four times recently at $1.47 and the chart suggests another attempt could be made soon. If there is a breakout, the initial target is the high $1.50s as noted above.
For the record, the tall green bar marked the opening of trading on Thursday immediately following the green anode announcement.
At the risk of putting you all into a deep coma, the following three charts provide an overview of how the secondary indicators are trending.
The first is the MACD chart showing the upward trend is gathering pace.
The second is the relative strength index which is moving higher.
And finally, daily volume which is building following a period of decline, possibly indicating breakout..
So, all in all I think it is fair to conclude the outlook based on the above is positive and a breakout to the upside could come in the next few weeks perhaps a little longer with a short term target around $1.55 - $1.60 and a longer term target in the high $2s.
Longer term I believe the share price will go way beyond a coupe of dollars all I am saying is that based on the pennant formation a price close to $2 looks to be quite achievable.
Equally, there are no guarantees the next move will be up, markets can be fickle, and we should keep an eye out for stormy weather.
A final comment.
I'm not into Elliott Wave theory because I find it too hard to see in practice but maybe, just maybe, we are about to embark on the third wave of a five wave movement. The third wave, or second upleg according to the theory is usually the strongest and if that proves to be the case here we could be about to surf our way into double figures, but as i say I'm not a true believer.
Let's just wait and see.
For anyone not familiar with charting the home page of Incredible charts has a lot of useful material on charting patterns for free.
Another really good reference is Thomas Bulkowski.
That's it for now...
I wish you all the best of luck.
(20min delay)