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Double Top Pattern on the Woolworths Group Ltd (WOW)
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: WOW
WOW looks to be potentially forming this pattern after recently breaking the mid-term uptrend and stopping at $34.43. The share price has recently reversed off the resistance level and formed support, with the breaking of support the final piece to complete this pattern. With the XJO falling this week, giving us a wider bearish view of the market, we are likely to see a further continuation of the current bearish move, and potentially a test of the support level at $31.10 – WOW will have some support in between these levels, but we only focus on the most recent support in time for this pattern.
