SLW: Ascending Triangle Breakout - Day 2

SLW capitalized on Tuesday's upside technical breakout of the Ascending Triangle with a strong 5% rally on the session.



The Gap Up opening to 34.95 was just below the "bottom rung" of Kumo (Cloud) resistance, beginning at 35.16. There was only a very minor pullback to fill the 34.90 gap left in the daily chart from Monday's high, then SLW began to climb into the Kumo (Cloud) resistance.

There isn't any way to tell in advance whether or not a stock will be successful in getting through the Kumo (cloud), either on the upside or downside.

That said, some factors to consider are: (1) how large of a base (or top) the stock has built, prior to the attempt to get through the Kumo (Cloud); (2) has the stock broken out of a pattern prior to, or during, the attempt; and (3) how thick the Kuno (cloud) resistance is.

Let's look at the January-February attempt to get through the Kumo (Cloud):

1. SLW had built a six-week base, prior to attempting to get through the Kumo.
2. That base also was an Inversse H&S pattern, which was very helpful and it gave the stock a much stronger chance of getting through the Kumo. The Bulls "had game," as it were.
3. Immediately prior to the Bullish Inverse H&S breakout, the Cloud had narrowed to the point that the readings for the top and bottom of the Kumo were nearly identical, suggesting that a big move might be in the offing. The day after the breakout, which was a Breakaway Gap, there was a one-day pullback near the top of the Kumo, then the rally to the 42.43 target, and beyond, ensued.

Currently, with SLW, we've got:

1. a roughly two-week base, which is small.
2. an Ascending Triangle breakout that put 37.43 IN PLAY. That's helpful.
3. Kumo (Cloud) resistance that, as of yesterday's close, ranges between 35.16 and 40.015. That resistance is much more substantial than was the Kumo resistance on the February upside breakout.

Rallying straight through the Kumo here is a more daunting task for the Bulls, and there also is a much larger overhang of supply from the April-June smackdown in the stock. A stronger base from which to launch a good rally would be better. We'll look at an example of how that "could" look in the next chart.

Before we do that, yesterday, we looked at the possibility of the current Ascending Triangle "morphing," or changing, into something bearish, like a Bear Flag, or a Bearish Rising Wedge. Given yesterday's strong rally through the putative top of what would be a Bear Flag, at Black #4, that possibility seems less likely. Bear Flag trendlines aren't always perfectly parallel, so the top trendline "could" angle up a bit and this still "could" end up as a Bear Flag, but we're talking likelihoods and probabilites. The important thing is the bottom of the pattern, which is a validated trendline. That "shouldn't" get violated.




While we want to FOLLOW Ms. Market as best we can, as we did yesterday with considering how the bullish Ascending Triangle "could" turn into something bearish, we also want to consider how the chart "could" be more bullish. Anticipating what "could" occur helps us to be prepared, if it actually does eventuate.

We know that 37.43 is IN PLAY from the Ascending Triangle. We never know whether or not any target will get MADE, but if this one does, or if SLW rallies to anything near it, then pulls back, we've got the posibility of an Inverse H&S pattern that would be larger than the one last winter and a stronger base from which to launch a rally through the Kumo, the top of which currently is at 40.015.

Just a possibility, but it sure would look purdy ;)