Last week, after presenting a "diamond in the rough" in Wednesday's Diamonds Report, Carl texted me and said that it looked like a "pig's ear" chart pattern. I had never heard him use this term (yes, Dad, never!) and decided to investigate further. Below is the chart he was referring to:
This is the chart as I presented it on Wednesday:
What I saw was a PMO that was nearing a BUY signal, a strong SCTR ranking, a positive RSI and an upside breakout from a consolidation zone. You can see why Carl named it a "pig's ear" just by the way it appears to be sticking out from the original rising trend, with that breakout putting the "point" on the ear. I was puzzled that he saw a bearish chart and not a bullish chart.
Well, today's AEM chart shows who was right... and it wasn't me. I then got very curious about this "pig's ear" pattern and looked for it in the Encyclopedia of Chart Patterns by Thomas Bulkowski. That is a book every chart pattern wonk should own. True to its name, it is an encyclopedia, overflowing with patterns you may not have even heard of. And the best part? He has back-tested them! You can learn more on thepatternsite.com. If you aren't a chart pattern wonk like me, Bulkowski's Visual Guide to Chart Patterns is also excellent. It covers the basic patterns and covers the psychology behind them.
Well, the "pig's ear" was not in the Encyclopedia of Chart Patterns, but "rectangle" patterns were, and.... drum roll... it is a bearish reversal pattern, not a continuation pattern. One may think it resembles a bull flag. I agree, which was why I considered that it was a continuation pattern. But let's get "textbook" - a bull flag has a downward sloping flag or a pennant (symmetrical triangle) on a flagpole. So this one actually resolved "pattern-wise" back to the downside, as expected. Right now, I'm bearish on AEM until it finds support at either the 50-EMA or the bottom of the rectangle. Based on Thomas Bulkowski's theory, it should actually break down out of that rectangle.
Conclusion: As they say, you learn something new everyday. The rectangle chart pattern is not a continuation pattern, it is a reversal pattern.
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Today's ChartWatchers "Diamond of the Week":
This "Diamond in the Rough" selection is from the September 17, 2020 DecisionPoint Diamonds Report. I have included the chart from Thursday with my original comments, after which I follow up with the current chart.
Axonics Modulation Technologies Inc (AXNX)
EARNINGS: 11/12/2020 (AMC)
Axonics Modulation Technologies, Inc. operates as a medical technology company, engaging in the design, development and commercialization of sacral neuromodulation solutions. The firm focuses on the treatment of patients with overactive bladder (OAB), fecal incontinence (FI) and urinary retention (UR). It offers rechargeable SNM systems, which deliver mild electrical pulses to the targeted sacral nerve in order to restore normal communication to and from the brain to reduce the symptoms of OAB, FI and UR. The company was founded by Guang Qiang Jiang, Danny L. Dearen, Timothy Deer, and Michael V. Williamson in March 2012 and is headquartered in Irvine, CA.
Thursday's Chart (yellow) and Comments:
"Down -0.69% in after hours trading, AXNX is my Diamond in the Rough today. I like the indicators here. The RSI is just getting positive and the PMO is about to give us a crossover BUY signal. In the thumbnail, you can see that the 20/50-EMAs are the current support point. I set the stop level to the March top. The SCTR had retreated from the "hot zone" above 75, but has recovered."
Friday's Chart (plum) & Comments:
I still like the chart. The RSI is positive and the "V" bottom is resolving nicely to the upside. The PMO has just triggered a BUY signal. Granted, overhead resistance is arriving soon at $46, but, based on the positive momentum and big volume, I don't think we will have a problem with it.
Weekly Chart & Comments as of today:
I like the RSI on the weekly, but I'm not thrilled with the PMO. The good news is it did turn back up. The 9.1% shows what the potential gain would be if it reached all-time highs from when I presented it on Thursday.
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Happy Charting! - Erin
Technical Analysis is a windsock, not a crystal ball.
Helpful DecisionPoint Links:
DecisionPoint Alert Chart List (subscribers only)
DecisionPoint Golden Cross/Silver Cross Index Chart List (subscribers only)
DecisionPoint Sector Chart List (subscribers only)
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
