Potential Double Top Pattern on the OZ Minerals Limited (OZL)
Welcome to Bravechart. Your in-depth article on chart analysis from a Scotsman stationed in the Outback.
As traders, we use technical analysis as a reliable method for speculating on future price direction of both equities (shares) and indexes. Technical Analysis in simple terms is the study of historic price movements in a chart in search of patterns or consistently traded support and resistance levels. Today we are looking at a Double Top.
Appearance: A double top Looks like a ‘M’ shape and comprises of:
- A strong rally usually to elevated price levels,
- A bounce off a resistance level (old or new),
- A reversal heading bearish,
- The bearish move comes down to a support level (old or new) and again reverses with bullish movement back towards the previous resistance,
- Failing at Resistance a second time is the first indication of the double top,
- The pattern isn’t confirmed until the support level breaks.
Pattern: The Double Top Pattern is a common chart pattern that can appear after the fact in a bearish market. The idea is to recognise it during the second bounce from resistance, watching the formation early on. Once that support breaks, it is a strong broader reversal pattern, and you can look at managing your positions.
Important Note: The Double Top is only confirmed once it has broken the support level and continued lower. If this doesn’t happen, you would be either looking at a channel forming, or a continuation pattern with further bullish movement.
Example: OZ Minerals Limited
OZL looks to be almost forming this pattern, with the share price having recently bounced off the resistance level, and potentially about to reverse to head back to test support. As you can see from the chart below, the support level at $9.60 is quite a key level, since the share price has stalled at it over the past 11 months. If the share price does continue to fall, and manages to break this key level, OZL will look strongly bearish and a target price of $8.83 will be our next level – also another key level in the mid-term for OZL. Remember however, this pattern will not be complete unless we hold the resistance level, and then see a break of the support at $9.60. If there is not a breakthrough support, we may see OZL track sideways and a channel pattern appear.
There are many ways that you could take advantage of these patterns. As a specialist in derivatives, we are able to profit on a stock when it falls as well as when it rises.
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