A couple of weeks ago I wrote about an apparent double top on CBA and suggested I wasn’t convinced that it had yet made a top. Market action at the beginning of this week brought the market closer to providing the perfection I was seeking and I thought I would use this to illustrate a technique known as an ‘extended ranges resistance card’.

Chart 1 illustrates what could be considered a triple top, with the latest (albeit incomplete) weekly bar pushing through a 50% repeat of the run up from 2009 to 2010, and which has just taken out the April, 2010 top.

Chart 1: Potential Triple Tops on CBA

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We should recognise that this market is in a strong uptrend, and while trading with the trend has proved most profitable, we would look for it to hit resistance at the old tops – and that is where it is now. However, I would also like to see a cluster of price resistance at this level before I would consider shorting the market.

In my previous article, Banking on a Fall, I showed the 2009 lows resistance card. Now let’s investigate a ranges resistance card. Usually we would only use a ranges resistance card when the market is still moving between the low and the high of the range in question. However, in the Number One Trading Plan, David Bowden provides cards which exceed 100% of the range.

Using the ABC Pressure Points Tool in ProfitSource, we can replicate this ranges card by placing point C over the top of point A. I have illustrated this in Chart 2 using the first monthly range out from the September, 2011 low.

Chart 2: CBA Daily Bar Chart with Ranges Resistance Card to 200%

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You can see the First Range Out highlighted with the pink arrow. This market has found resistance and support at several of these price levels and is currently showing a reversal at 200% of this range.

I suggest you try this technique on any range that the market is no longer operating within, to see if it reacts around the higher percentages.

Chart 3 below illustrates a ranges resistance card on the ANZ Bank. Do you think this might be a useful resistance card to watch? If you find good examples in your preferred markets, I’d love to hear about them on the Safety in the Market Discussion Forum.

Chart 3: ANZ Daily Bar Chart with Ranges Resistance Card to 200%

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Turning back to CBA, we now have a cluster of price resistance at the current level. You should add some time analysis to help you form your view of future market direction. Only time will tell if this price cluster will hold the market back, whether we will see any significant retracement or whether there is a pause in the market before this uptrend resumes.

It’s the Journey

Lauren Jones