In August, however, the stock started moving upward. It ultimately appreciated around 400% in the next year. Clearly, the larger trend was bullish. As price followed this bias, we saw sharp rises followed by a small period of consolidation and then more moves higher.
The blue lines are trendlines that were drawn from the high point of the candlestick that formed as a result of a solid upmove. The trendlines have been connected to the tops of a few more candlesticks that created resistance. Once the resistance broke, there was a fresh rally higher.
We can see similar movement in Domino’s Pizza Inc. (see “Parabolic push,” right). The stock broke out above its 52-week high and the 21-, 50- and 200-day moving average on the three-day chart in early 2010. Since then, it has risen close to 700% in just three years. Throughout this rise, the stock offered trading opportunities after phases of consolidation, and the breakout would see rallies of 10%-15% with the stock finding support at the 21-day moving average. The stock did break the 21- and 50-day moving average, but later rallied further.
Lumber Liquidators Holdings provides another classic example of a stock breaking into a sustained trend (see “Run and gun,” right). The stock had consolidated within a rising channel for the latter half of 2011. In 2012, it broke above the range and started a rally that had periods of short trends and consolidations. Once again, the breakouts from the consolidating patterns gave the stock a 10%-15% upmove in a short span of time, usually just three to four days.
The consolidation would then go on for a month, after which the uptrend would resume. The stock was creating higher highs and a future support level. It gave a break from the $48 resistance in September 2012, and later on that resistance became a crucial support that twice gave the stock a bounce from those levels. Thus, the uptrend continued.