Watch for spikes that might not hurt at all

THE Australian sharemarket is at the same level it was in 2005, meaning there have been no real price gains in that time for the average of stocks making up the index. The general market index, the All Ordinaries, is up about 10 to 15 per cent since the major dip last September.

By InvestSMART · 15 May 2012

By InvestSMART ·
15 May 2012

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However, Robert Brain, director of the Australian Technical Analysts Association, says it is possible to identify stocks that will deliver stellar returns even in flat or down markets. "Syrah Resources," Brain says, "is one such gem having risen 900 per cent since last October from a mere 10? to a recent high above $1.30."

Brain suggests scanning the market every week looking for stocks with a spike in weekly volume. That is identified where the vertical volume lines on the bottom part of the graph break through the five-week moving average (the blue line snaking horizontally on the bottom graph) and such situations warrant further investigation using candlestick graphs.

The candlestick graphs on the top chart represent weekly prices. Where the candlestick is white the stock finished the week higher than where it started and the height of the candle denotes how big the rise was. A wick on top of the candle shows there was an intraweek high that was above the closing price for the week.

A black candle indicates the share price fell that week. And wicks or downward wicks indicate intraweek movements either higher than opening prices or lower than closing prices.

We can see Syrah was stuck in a consolidation phase below 10? from August to October last year. Then things started to change, with the tallish white candle for the week starting October 31 pushing through the 10? level and closed near its weekly highs. The next week, volumes jumped dramatically and Syrah again rose, finishing the week on its highs.

A second major step up happened in the week of November 28, with the tall white candle with no wick indicating Syrah finished that week on its highs.

A canny buyer would have used those two signals as a chance to get in, Brain says. Had they done so they could have ridden Syrah up to $1.42 earlier this month. Since then profit takers have pushed the price back to $1.05.

Syrah is an explorer with a market capitalisation of $133 million. It has returned investors 863.7 per cent in the past year and 200.7 per cent annually for three years.

This column is not investment advice. Those wishing to invest should seek professional counsel and do some homework. rodmyr@gmail.com

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Frequently Asked Questions about this Article…

What does the article say about Australian sharemarket performance since 2005 and the All Ordinaries index?

The article notes the Australian sharemarket is at roughly the same level it was in 2005, meaning no real price gains for the average stocks that make up the index. It also says the All Ordinaries is up about 10–15% since the major dip last September.

How can everyday investors spot stocks with potential using weekly volume spikes?

The article recommends scanning the market weekly for stocks that show a spike in weekly volume — identified where the vertical volume bars break above the five‑week moving average. Those volume breakouts warrant further investigation with candlestick charts to assess follow-through.

What do candlestick charts show and how should investors read weekly candlesticks?

According to the article, weekly candlesticks show price action for the week: a white (or light) candle means the stock finished the week higher than it started and the candle height shows the size of the rise; a black (or dark) candle means the price fell that week. Wicks show intraweek highs or lows — a top wick means there was an intraweek high above the weekly close, and downward wicks indicate intraweek moves below opening or closing prices.

Which company does the article use as an example of a stock that delivered big returns?

The article highlights Syrah Resources as a standout example. It describes Syrah as an explorer with a market capitalisation around $133 million and notes dramatic gains: a roughly 900% rise since last October (from very low levels to above $1.30), an earlier peak near $1.42, and reported returns of about 863.7% in the past year and 200.7% annualised over three years.

What specific technical signals in Syrah’s chart did the article point to as buy opportunities?

The article points to two signals: a tall white weekly candle in the week starting October 31 that pushed through the low level and closed near weekly highs, followed the next week by a dramatic jump in volume and another finish at weekly highs. A second major step up came in the week of November 28 with a tall white candle that finished on its highs with no top wick—these were cited as chances a canny buyer could have used to get in.

What should an investor do after spotting a weekly volume spike or bullish candlestick patterns?

The article advises using those volume spikes as a trigger to investigate further with candlestick analysis and chart context. It implies investors should confirm follow‑through (closing on highs, rising volumes) before acting and treat signals as starting points for more homework rather than automatic buy calls.

Does the article offer investment advice or recommendations for everyday investors?

No. The article explicitly states it is not investment advice and recommends that anyone looking to invest should seek professional counsel and do their own homework before acting on chart signals or examples.

What short‑term risk did Syrah experience after its run‑up that everyday investors should be aware of?

The article reports that after Syrah rallied to about $1.42, profit‑taking pushed the price back to roughly $1.05. This illustrates the short‑term volatility and risk of pullbacks even after strong runs, which investors should factor into entries and exits.