Saucer pattern/Rounding bottom stocks

This is a little venture that started out with a recent foray into DES Destra Corp:

https://www.aussiestockforums.com/forums/showthread.php?t=578&page=1&pp=10

Basically, I'm looking to post stocks here that fit the technical pattern for a reversal pattern know as a rounding bottom or saucer pattern. It's described in Edwards and Magee in clear terms (see Destra thread link above).

Basically only post charts which probably will fit the pattern or are very close to it. We wont know for sure so make a good call. Hence volume confirmation need not be perfect but is desirable (as in Destra). You'll need to zoom into a shorter time period sometimes to see the volume pattern. Strong or quickly improving fundamentals reduce our risk exposure even further.

We're basically trying to get in on stocks that are about to zoom up after completing a bottom reversal- hence not picking the bottom but picking the breakout. To state the obvious there's no point in posting stocks which have completed the pattern (except for illustrative purposes), as the 'easy' or low risk money has already been made.

I'm focussing on this pattern as it appears to be more predictable than other patterns (eg triangles). Only issue is finding the perfect candidates as the pattern is not that common and can be hard to spot while it's being formed, it's worth the effort if we keep an eye out. Look for breaks in downtrends and consolidations with drops in volume as prices stabilise.

I am just experimenting with this at the moment so if someone has more expertise in this pattern please correct me.

Charts which illustrate what we're after appear in the next post:
Destra DES
Customers CUS

Here's Destra DES and Customers CUS.

DES, note the thinning out of vol towards the bottom of the saucer or bowl pattern- basically the price (and vol) ends up like the outline of a bowl. Called a saucer for same reason- often found in tiny mining stocks but harder to predict in that sector as prices just spike. In DES price consolidates and pierces resistance at 10.5c which would have been the entry signal with a tight stop if it fell below 10c. We normally enter once vol picks up.

CUS This is not the classical round shape but note the vol drop in Aug/Sep and corresponding fall to support in sp. Note the break in the downtrend and consolidation in September. Followed by breakout from resistance at 7c (trigger to enter), then consolidation and commencement of the upswing. Stoploss would have been at 6.5c. Fundamentally CUS had just started revamping its business and there was news of this available- further confirming the 'turnaround' and reducing risk. (CUS hit 14c today)

Note that in both these charts the crucial period is after the break in the downtrend when it is consolidating and about to rise. If volume has picked up then we should prepare for entry IMO.

GP posted a chart in the Destra thread showing another bottom formation- worth a look. Let's see if we can help each other with these ones and find some ripe stocks to pick some profits off. Hope you can join this one GP as you were interested in the DES thread. Please be very selective with candidates but there's no harm in suggesting a stock that we can all have look at to analyze.

Rich.

Like any chart pattern there are 3 outcomes.
(1) Nothing.
(2) Positive price action.
(3) Negative price action.

Here are 6 charts I used as examples about a year ago in a discussion.
2 flew to add 100% to initial capital.
2 failed.
1 I cant find maybe delisted?
1 did little.

Best thing to do is simply set a stop and trade the pattern.
From what Ive seen if it doesnt go on with making new highs after the initial high is made then it wont get going at all.
So to have a bigger than 5% of purchase price stop is pointless.

If you have better than 50/50 result then your indeed LUCKY.

Ill leave you to look up the charts and see how they have performed Sorry I didnt take a pik of the months.

Only loaded 5 as thats the max.

Hi Tech,
Thanks very much for the charts, based on the tactics I mentioned those particular charts would have been good (the majority of them anyhow). Again, if we were really trading those more info (eg volume and general info on co) would have helped decide whether to enter. I'll take a closer look at the detailed history of your charts later to see what I can learn about the BR (bottom reversal) pattern.

Basically I'd set a profit target and compare that to the pattern to see if it's achievable. With these types of patterns even 50% success is great (as you mention) as they really fly, hence my liking for the pattern. My target is 33% return with min risk to return of 1:3 for the individual stock I set my stops very tight, usually near the support/resistance that triggered the breakout (entry signal).

Main issue is to only trade the more reliable 'classical' patterns- as your small selection shows they are the more reliable ones. Still more research to do. Hopefully we'll see a few posts on stocks with emerging BR patterns so I can put my money where my mouth is rather than pretending to be an expert after looking at old charts!!

I note your observations about the first wave or high needing to be followed by another high- this is the crucial period and emphasises the need for profit targets and stop losses if the trend breaks suddenly. I also need to research elliott wave theory to see if the three step surge is common in this type of reversal, it becomes very important After the entry.

Thanks for the input, hope this keeps going. BTW do you have a link to that old thread/discussion you mentioned? Was it on bottom reversals specifically?

Ive had a look but cant find it.

I only post on reefcap so must be under an obscure title!

You really need to buy "The Encyclopedia of Chart Patterns"
give yourself an Xmas present.

You can also download a whole tutorial on Elliot wave from their site.Its very good but you can only dowload a chapter a day and there are 28 of them!!

You have to log in and get bombarded with their advertising.
I really wonder why would you need to send countless emails to sell your product to prospective clients.

Wouldnt word of the success of your trading methodology preceed any advertising.
While Elliot is very interesting it is also just another entry and exit selection method which can and will fail as often as it succeeds (if we are lucky).

tech

Hi Tech,
THanks for looking for the old thread, I'll see if I can locate it on Reefcap even though I don't subscribe to it, might be worth the search for me...

I have heard about the book you mention, must look it up sometime, thanks for telling me- had a quick look on Amazon for it:
Encyclopedia of Chart Patterns
by Thomas N. Bulkowski about US$55

It has some figures about failure rates etc but I don't think I'll go into that much detail, it'll probably help me recognize patterns quicker.

I must download the Elliott wave stuff, I've heard it can be fairly arbitrary but it's good for general knowledge and who knows it may help. Thanks for the warning about the site, obviously it's not as fool proof a system as they'd wish. I'd seen the tutorial before but hadn't bothered to look into it.

If you find any candidates for this thread let me know and us TA novices and wizards can take stabs at creating a good trading system for this bottom reversal pattern.

The only ones I've noticed recently are half a rounded bottom in Strathfield (SRA) and a sort-of rounded bottom in Century (CYA).

Cheers,
GP

Actually nicely rounded bottoms in G strings are the best patterns in my veiw!!

tech/a said:

Actually nicely rounded bottoms in G strings are the best patterns in my veiw!!

Click to expand...

That's one pattern that is easy to recognize- now settle down Tech!! What is it about that word that gets people excited??!!

GreatPig said:

The only ones I've noticed recently are half a rounded bottom in Strathfield (SRA) and a sort-of rounded bottom in Century (CYA).
Cheers,
GP

Click to expand...

Hi,
Thanks very much for the charts GP:

SRA looked good (I used 2yr ohlc daily chart which framed the price action a bit better), not the perfect candidate but close enough for our purposes. Unfortunately we missed the breakout at 15c in June, we would have stopped out and re-entered in August but that's old news now. It may rise further but we've missed most of the 'easy money' ) (or quick, short term trade for high return 30%+)- ie the more predictable stage with better risk to reward ratios. Some may argue once it rises it is more likely to keep rising but that would mean looking at different patterns and entering for different reasons (it looks good for longtermers, congratulations if you bought earlier). So if we'd seen this one earlier we would Most Probably have got into it as the returns were great in a short space of time and it fitted the RB pattern.

As for CYA, best looked at on a 1yr daily OHLC chart first imo. CYA now at $1, looks okay but to get to a min of $1.30 (for a 30% min return) it'll really have to get a move on, next resistance is at $1.05. I'm looking at its short history and increasing but still minimal volume and thinking it may take too long. Volume has picked up a bit which is favourable but overall it appears as though it may range trade, I'm just not sure about this one. Strong fundamentals may help here but I don't see any in the announcements, looks like one of those lazy listed investment co's. A longer sp history may have yielded more patterns to work with in terms of a price target. but the timing would otherwise be perfect for this one as it has just broken resistance and has closed above it a few times on higher recent volume (ie $1 is now support).

Other opinions? When in doubt I stay out!! (I might just remember that last line...)

Lets keep looking folks and I'm sure we'll find a good one to get into (if we decide to- remember this thread is not a tip sheet, just an exercise in TA, you'll have to decide individually whether to put our money in).

Okay, here's one that I'm in MRX Matrix Metals (didn't notice the reversal patterns till now- my original reason for entry is in Jan tipping comp thread). I know this sounds like I'm plugging my own stock but because the price is stable anyone can enter so I don't have an advantage (same occurred with DES, see thread referred to in first post).

CHART 1 (top chart). You can see the classic reversal pattern occurred in 2002/2003. False 'breakout' surge in February 2002 corresponds to E&M observations in their book. Only issue was the near dissapearance of volume didn't occur at middle of turn. Resistance at about 5.5c, finally broken in September 2003 with a recent increase in volume. Stop would have been at 5c. If we'd set our profit target at 30% we would have exited prematurely but there was always the opportunity to re-enter on confirmation of trend.
Another flag (?) or triangle pattern in Nov '03-Jan'04- classic bull pattern would have helped with possible re-entry or continuation if we'd let profits run instead of exiting at 30%, perhaps steep rises should encourage us to lift trailing stops tightly rather than sticking to initial profit target.

CHART 2. Now for the recent price action: Break in downtrend in late Nov '04 on volume. (Nov also saw a compact symmetrical triangle). If we zoom out now and look at the big picture the 'rounding' starts around June '04 and curvature goes atypically (not a classic pattern like the one above) upto Dec '04. We can either wait for confirmation of breakout from resistance at 12c or buy in at 10.5c, with stoploss at 9.9c (5.7% loss). Next major resistance for upward move is 16c (52% profit) once 12c is broken, look for volume as prices have already started moving up from the lows of the last few months. Three or four week time frame before real action IMO as the BFS annoucement is expected then but prices may rise in anticipation (especially if co insiders start buying) hence reason for entry now- also longish queues to get in at 10.5c. Minimum profit target is 30%. If pattern coming through strongly may let it run.

So there it is, what are your opinions? I'm already in the stock so you can all see how I do. Fingers crossed and my stops are being watched. Any comments welcome, any one else in MRX? For same reasons?

Okay, been a bit busy so haven't been able to go through all of Tech's old charts, also looking at Elliott wave atm to see if it might give some clues as to trading the breakout pattern. This might take awhile, any technical comments on Tech's old charts are welcome re saucer patterns. Some obviously aren't textbook examples as Tech suggests, so it's not as easy to predict. I'm still looking for low risk, emerging rounding bottom stocks on the ASX, let me know if anyone sees a genuine candidate as discussed at start of this thread.

Would ERG fall into this category?

If you look at the chart below, there was a period of low volume at about between Sept and Nov. Looks like it'll have to break a resistance of 0.35c before it will go anywhere though.

Yes, doesn't seem to be a rounding bottom if volume is anything to go by. Downtrend is broken though and seems to be range trading/consolidating. Might be worth checking resistance breaks on volume for breakout signals, but it could go lower too. No point in trying to pick the bottom. Not a candidate for our strategy imo. Thanks for posting it.

Okay, MRX has broken through the flag pattern on strong volume, let's see how it goes at close of trade, this week is looking good, lots of depth too on the buying side. It needs to get to 13c minimum to give me confidence this week.

Okay end of day, very high volume (about 21m) but price has settled on of upper boundary of flag. LOTS OF DEPTH on both sides though, so it's just a matter of time. I thought it may have been another week before things started but looks like the market has got an early whiff of things to come.

Well, well, well, there goes the stop and the candidate. Time to search for another one. Poor BFS result sees it marked down. Easy come, easy go. Let's see if someone tries to take this one over at these prices. Might be another tech opportunity....

CUE is completing a nice saucer bottom, downtrend broken, slowly rising after disappearance of volume, approaching resistance at 35c- looks like a break above it on volume will be the trigger. F/A suggest market is waiting on estimate from appraisal work with Santos.

Just realised this- an even lower risk entry was at breakout from 28c at first stage of saucer on about 5Jan05 (see long candle). Missed it completely on the chart, must be more watchful next time as it was a clear signal.

CUE has some news. Buys into a field in New Zealand, let's see what the market thinks.