From there, it dropped almost to penny-stock status, losing 86% by late February of 2009. The stock made an impressive countertrend rally from about $4.75 to about $9.50, the it broke the uptrend at about $9. For ASGN, this wedge was a continuation pattern, since the stock had been falling already during 2007. The ascending wedge can act as a reversal pattern (changing a bullish uptrend to a downtrend) or a continuation pattern (representing an upward pause in a general downward-moving trend). Symbol ASGN, charted in AW-3, illustrates a more dramatic plunge following an ascending wedge, and there is no retracement following the price break, meaning only those who were already in the trade (or got aboard quickly) reaped the full benefit of this drop others didn’t have a second chance. Price Drop: 38% Example: On Assignment, Inc. The violation of the lower trendline commenced the beginning of a new, broad pattern in price which was downward in spite of a series of significant buying spurts The important thing to note about this chart is that the broad direction of the stock changed, and that change was signaled by the termination of the ascending wedge. It would be many month before these lines would converge, but as long as the price breaks out of the pattern before this intersection, the pattern can be considered complete.Īlthough this stock fell from about $29 to $24 after the initial break, it would take several months of meandering before it finally dipped below $19 in the summer of 2010. The lower trendline spans from April to September of 2009, and the resistance trendline above it is at a less sharp angle. Here in AW-2 we have a simple example of an ascending wedge. This temptation to sell can become widespread, and if people start acting on that temptation, then the selling can feed on itself. Buyers simply are unable to give the stock as much lift with each successive push higher, and once the price breaks beneath the lower trendline, the mass of buyers (who until this time were happily watching their profits increase) may make a rush for the exits by way of sell orders.Įven if such a stampede doesn’t take place the fact is that the cleanly-defined uptrend has been broken, and the stock is vulnerable to a sell-off, since those following the trend no longer have a rational technical reason to hold on. The tell-tale sign of this pattern is the upper trendline, because the distance between the “higher lows” of the lower trendline and the “higher highs” of the upper trendline becomes more and more narrow. The nature of this pattern, however, is one in which the strength of the movement higher loses energy until such time as the supporting trendline can no longer bear the “weight” of those who want to sell the stock. Banco Santander’s ascent was long-lived and substantial before it finally gave in to selling pressure Psychology Behind the Patternīecause the prices are generally ascending during the formation of an ascending wedge, holders of the stock are increasingly optimistic and bullish about its prospects. However, the pattern’s long formation and break to the downside was an important harbinger of the forthcoming movement of the stock, which was decidedly to the downside. On the contrary, the stock went on to a new high a few weeks thereafter. Take note that the price didn’t just plunge straight down after the pattern broke. Instead, they converge on the right side, although the price bars may break beneath the lower trendline well before this intersection.īanco Santander, which went down 44% in price after its ascending wedge was broken. The pattern requires just two lines: both of them are ascending, but they are not parallel. This pattern has a close relative in the form of the Descending Wedge, which is covered in another section. Because the lower trendline is the most vulnerable to being violated, this pattern is a reliable bearish indicator when and if the price bars slip beneath support. The pattern highlights price action which, although moving higher, is becoming increasingly confined. When price bars are confined by an ascending trendline beneath and another trendline above, and these lines converge on the right side, this is called an ascending wedge.
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