A quick lesson on market structure and how to trade a stock in the midst of a parabolic uptrend.
$NAK $NDM (Northern Dynasty Minerals) is a stock we have traded recently and done quite well with:
NAK broke out from a long term basing pattern late last year and has since staged an aggressive rally on heavy volume. This is undeniably bullish and we would not even consider shorting a chart like this until we saw much clearer evidence of a topping formation.
However, there are early signs that the parabolic advance is unsustainable and may be losing some steam:
- Volume is not accelerating as price moves higher
- The most recent correction was actually deeper than the previous one
- Volatility is increasing
- Increasing number of 'distribution' days (down days on heavier volume than the previous day)
So while we CANNOT say the top is in, we can certainly raise an eyebrow and monitor this chart closely as it is likely to continue to offer trading opportunities on both sides of the 'tape' (both long and short).
I will leave you with a little 'secret' - as long as relative strength (RSI circled in blue at top of chart) remains above the median line (50) in bullish territory we will want to trade NAK from the long side. However, if and when the daily RSI-14 breaks the median line to the downside it will be a strong signal that the top is in and it's time to seriously think about trading NAK from the short side.
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DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The views expressed in this publication and on the EnergyandGold website do not necessarily reflect the views of Energy and Gold Publishing LTD, publisher of EnergyandGold.com. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.