BlackbearTrader

Double Bottom Chart Pattern

Long
NYSE:ACA   Arcosa, Inc
Company Info

The company was incorporated in 2018. Since then, it has seen tremendous growth despite the 2020 pandemic. Arcosa , along with its subsidiaries, provides infrastructure-related products and solutions for the construction, energy, and transportation markets in North America. It has three operations: construction products that offer natural and recycled aggregates. Engineering structures that provide utility structures as well as wind towers and traffic and lighting structures. Transportation products that offer inland barges, fibreglass barge covers and other components.

Sector Analysis

Looking at other stocks in this sector - the results are mixed. CAT, the global leader, has recently been on a downward trend while other stocks are slowly moving upwards in a constant trend. The ETF that tracks this sector (Global X U.S. Infrastructure Development ETF (PAVE)) has been rapidly increasing since 2020 and recently has been stuck, around a price level of 25 – 28. If in 2022, there are more infrastructure bills, or as the current ones are implemented. This could lead to large growth in the company and the ETF /sector as a whole.

Double Bottom Analysis

Type:

Eve and Adam

Length between Valleys:

12 weeks

Volume Trend:

Mixed

Breakeven Failure Rate:

12%

Throwback Rate:

67%

Average Rise:

42%

Price Target:

68.87

Percentage Change:

18%

There are four variations of double bottoms. Two factors, Adam and Eve. Adam is where the price is spiky and the width on the chart is small and long. Eve is where the price is wider and is more rounded, leading to a wider width on the chart. In this stock, the double bottom is Eve and Adam. So, the left valley is wider, and the right valley is more elongated.

The ideal length you want between the left and right valleys is between 3-6 weeks. This stock is way above that at 12 weeks. This rule isn’t that important, but it could pose a few issues. Such as, why is the stock taking so long to break out of this pattern and could that mean the double bottoms strength is not ideal

For double bottoms, the volume is usually higher on the left valley and volume trends downwards from the left to the right 64% of the time. In this stock, the volume is larger on the left side, but you can't really see it. Once you apply a Moving Average (blue line and yellow circles) then it is seen. However, this is because, on the left valley, there have been two spikes in volume that bring up the overall average volume . So, this spike on the moving average is misleading. Therefore, I wouldn't consider it a larger volume on the left.

Looking at the chart, we can see something good for this double bottom . There is a decline leading to the left valley that extends for almost 3 months. That is a positive. However, the chart pattern has formed at the top of the chart. Double bottoms perform best near their yearly lows, not yearly highs. Therefore, I am a bit concerned about the lack of upward potential on this stock. Another thing that is not ideal is the right valley is lower than the left one. If it was the other way round, it would be fine. Another thing to be wary of is the price target. It's too close to a resistance level (lower orange line) and the yearly high. So, this further limits the upward potential. Furthermore, looking at the RSI indicator we can see that the stock is currently overbought. The last time the stock went to the confirmation line it wasn’t overbought but it is now (blue rectangles). The only positives are the stock has nearly broken out of the confirmation line (upper blue line). Also, the valleys seem to find support at the Fibonacci retracement lines. Taking all of this into account, I am giving this pattern a strength rating of 2/5.

One more thing to consider. ACA has an earnings call in the next couple of months. This could pose a few issues. But, looking at the company's strong fundamental growth over the last few quarters - I doubt it will be anything negative.
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