GP Batteries is an extremely illiquid stock, it gapped down twice, had a dead cat bounce and thereafter followed by a sudden increase in trading volume. The best opportunity to get out of GP Batteries was on 7 Mar 2014, after a bearish shooting star 1st appeared on 20 Feb 2014. Do not catch a stock falling on high volume or one that is rising on thin volume. Using share price and trading volume as a major trend indicator, for all downtrend stocks, especially illiquid ones, if the share price is down with increasingly high volume, it's a bearish signal indicating that it's in distributing mode.
The bear pennant pattern is found within a downtrending stock. This pattern is named for the resemblance of an inverted pennant on a pole. The bear pennant is a continuation pattern with narrowing price action following a constant decline. The technical sell point is when price penetrates the lower trend line of the pennant area, ideally on volume expansion.
Context: Found within a downtrend.
Appearance: The decline has solid volume and the downward price action is consistent, which forms the look of an inverted flagpole. The resting period and narrowing price action is characterized by volume contraction as downside intensity is temporarily interrupted. This forms a pennant which also resembles a small symmetrical triangle. The pennant portion of the pattern has highs and lows which can be connected by small trend lines which converge.
Breakout Expectation: The height of the flagpole may be subtracted from the breakout area at the end of the pennant to determine the expected decline which follows. This is why the bear pennant pattern is often found in the middle of stock declines as a continuation pattern.
The graph below shows how each day is weighted in a 10-day simple moving average (grey) versus exponential moving average (red). For the uninitiated, the SMA and EMA are the two types of moving averages most commonly employed by traders.
In the 10-day SMA, each day from 0 (the most recent) to 9 (the most distant) is equally weighted (10%).
In the EMA, day 0 makes up 18.2% of the average. That falls to just 3.0% by day 9. The left tail on the graph (day 20 and beyond) extends indefinitely, but in total makes up just 1.8% of the average.
The next graph show the daily weighting for a 50-day SMA/EMA, and the graph below that compares a 10-day EMA to a 50-day EMA.
For those familiar with how these averages are calculated, none of this is new information, but I thought it was interesting to see it visually.
For me personally it’s a reminder of how arbitrary an SMA is, weighting the very last day in the average equally with the most recent day, and how much of an impact it can have when that last day falls out of the average despite not telling you much about what’s going on today.