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Trade: High and Tight Flag (‘HTF’) that looks for 100%+ returns.
The last trade we identified like this went up 30% over the next three days – Clean Tec Holding (CLQ)
The HTF pattern is highlighted in black. There are a few key attributes that HTF need to increase the chances of seeing 100%+ returns:
- Strong flag pole; the vertical black line shows the flag pole and needs to have a 75%+ rise. MLD has about 80% which is around the minimum required for this pattern and sets up for another ~80% from the breakout point (yesterday’s open) (1/2 point).
- The flag pole needs to be rapid with little interruption in the rise. MLD meets this requirement. (1 point)
- After the strong rise in the flag pole, there needs to be a reduce in volatility. MLD remained volatile in the month after the flag pole, but reduced over the next two months. The reduction in volatility can be seen in the black channel (horizontal lines). Ideally the formation after the flag pole would be shorter, a few weeks, and see rapid reduction in volatility. The movement within MLD’s channel continues for such a long time after the flagpole that it almost negates the flag pole. (0 point)
- When the share price breaks above the black triangle the movement should be a strong, pronounced movement with a significant increase in volume compared to the prior two weeks. MLD shows a volume increase with higher volume in the orange circle which is significantly higher than the averages and higher than any down day after the notable volatility in late August. (1 point)
- Strong movements from companies in the same industry/sector/theme. MLD is apart of the mining services companies that have been the best performers on the ASX over the alt few months. – the future success of this trade is highly dependent upon the continued strong performance of this group. (1 point).
For a checklist of early warning bells for leading groups and themes watch this video here
Company snapshot: MLD is a mining and civil construction company contracting in mining, civil earthworks, crushing and screen along with mining haulage solutions in Australia.
Mining Services have come from a low base and being one of the worst performing sectors on the ASX over the last few years.
This low base has made the surviving companies, leaner, more efficient and more focused on core revenue streams. Coming out the other side of these tough times, these companies have seen exponential returns with the smallest change in external conditions to become slightly favourable.
3.5/5 points – with the most notable deterrent being a steady share price over the August reporting season – which by itself is a strong indicator compared to the rest of the ASX, making a reasonable start for this trade.
Statistically, having that support of sister companies doubles the likelihood of this chart pattern returning 80%+.
Given the strong movement in ASX-listed mining companies, MLD is a great opportunity for the fast-paced, rapid trader who is diligent on stop losses and identifying theme criteria.
Note: this is not personal advice, conduct your own research and consult your broker to see if this trade is suitable for your own circumstances.
Christopher is head of equites at Spring Financial Group. Christopher has over 10 years' experience managing equities desks with thousands of retail clients and responsibility for maintaining and servicing retail and wholesale relationships.