To identify the direction of a stock, we use a popular technical indicator called Moving Averages. The Simplified Moving Average (SMA) is a mean average constructed by summing up a set of closing prices over a specified period and dividing the summation by the period used. The Moving Average can also act as a support level or resistance level when a stock bounces off from it, which in turns will help you time the turning point of a trending stock.

An uptrending stock can be characterised by a moving average that is sloping upwards. Next, we will lookout for possible buying opportunities at the support level when a stock touched and rebounded from an upward sloping moving average. The next step is to lookout for bullish signals to increase the odds of an upside move from the support level. One of the signals is “Bullish Japanese Candlestick Reversal Patterns”.

As seen from the chart of Cosco, it declined after hitting a high of $2.17 on 14th December 2010. Interestingly, the fall seen in the price action managed to find a floor at an upward sloping 50-day moving average (blue line) and staged a rebound from it. This observation suggests that the presence of a bullish trend. In addition, a bullish Japanese candlestick reversal pattern called “Bullish Harami” was spotted as well. Thereafter, Cosco had a rally of 11% to record a high of $2.33 on 5th January 2011.

The similar trade set-up was seen recently on 11thJanuary 2010 where Cosco staged a rebound near an upward sloping 20-day moving average (red line). Coupled with a bullish Japanese candlestick reversal pattern called “One White Soldier” being detected, Cosco may see a rally to target the immediate resistance at 2.33 follow 2.65 next. On the other hand, failure to hold above the immediate support at $2.17 may damage the on-going uptrend to see a sell-off towards the next support at $2.03.