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DOUBLE BOTTOMS


Take A Dive Into SCP Pool

08/04/11 09:04:34 AM
by Koos van der Merwe

Is the pattern a double-top double-bottom formation or a flag?

Security:   POOL
Position:   Accumulate

I find it surprising that with the economy in the doldrums as the politicians in Congress place their political ambitions ahead of the economy, that SCP Pool, a supplier of swimming pool, spa, and backyard-related supplies and equipment, should suggest a possible buy pattern. Then again, the strategy is always to buy when everyone else is selling, so very likely someone is nibbling at this stock.

FIGURE 1: SCP POOL, DAILY
Graphic provided by: AdvancedGET.
 
Figure 1 shows how the price has risen from a low of $18.38 in August 2010 to a high of $31.01 by May 2011. In April 2011 the price formed a gap, and the price did indeed fall to fill that gap, falling as low as $26.20 by June 2010. The price then rose to $30.88 by July 5, falling once more to $26.11 by July 29. Now, is this a double-top double-bottom formation, or is this a flag pattern? In either case, the share should now rise to test the upper trendline, giving a return from present levels of greater than 10%. However, if the pattern is a flag pattern, then the price should continue rising to a target of $38.74 (31.01 - 18.38 = 12.63 + 26.11 = 38.74). With a flag pattern, one should also wait for the price to break the upper trendline before buying.

The relative strength index (RSI) has also suggested a buy, so one could nibble slowly at the share in this very uncertain market climate.

A share to watch and buy as and when the market starts recovering.




Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
Phone # for sales: 6042634214
E-mail address: petroosp@gmail.com

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