Chart of the Day: Chemring

The last time we witnessed the type of positive reversal which can be seen on the daily chart of Chemring in the past 24 hours, the shares in question – Plus500 (PLUS) and Imagination Technologies (IMG) – not only rebounded but put on significant gains.

Chemring (CHG): “Power Drill” Reversal

There are a couple of formations / setups in charting which I rely upon, but which to my knowledge do not have an existing name to label them. The first is a gap through a moving average – which in the case of the 50 day line I refer to as a “Rocket Launcher” given how powerful the upside can be. The other is the “Power Drill” where a stock or market gaps down, and the open of the day turns out to be the low zone, after which there is a sharp move to the upside. This is what we have been treated to: a sharp bear trap rebound yesterday from below October’s 114p support, and a long candle yesterday as an attempt to close the Tuesday gap up to 135p. This currently looks to be the “minimum” on the upside for the shares, with the hope being that an end of day close back above this key level will trigger decent follow-on moves. Just how high the stock could fly is suggested by the January resistance line / 200 day moving average at 151p – a one to two months target. Only a move back below 114p would question the recovery argument.