Oliver Kell refers to the Wedge Pop as The Money Pattern.

The Wedge Pop is confirmation that the stock has bottomed and the uptrend has begun.

The chart will begin to display accumulation volume as the price reclaims the moving averages. Once the market or a stock has bottomed, the price action will change character and begin following the Cycle Of Price Action.

As price volatility contracts, the stock will find resistance near the tightening moving averages. A new uptrend begins when the stock trades through the price range, reclaims the moving averages and exhibits increased accumulation volume.

Remember to apply the Cycle Of Price Action to the indexes and individual stocks. When an index displays a Wedge Pop, the leading stocks may be setting up a more traditional longer-term base.

Reversal Confirmation

A stock's low will always be unknown until after the fact. We don't know that a stock has bottomed until we can confirm that a new uptrend has begun.

Remember, the bottoming process will be unique to the individual stock's character and the market environment. The Reversal Extension exhibits capitulation with volatile price action, and then the price snaps back up into the moving averages. However, sometimes, we see more of a rounded bottom as volume decreases.

We will unlikely see a sustainable bottom until a stock rallies to test the moving averages and has a few days to retreat. This contraction in volatility creates a more actionable area.

The Wedge Pop confirms a change in character after the stock has bottomed when the price finds strength and moves up through the moving averages.

It is best to avoid a downtrend when the moving averages act as resistance, guiding the stock lower. The bottoming process may also be volatile and difficult to trade. Waiting for volatility to subside may set up a more actionable area.

Symbol: DKNG
Company:
Draftkings
Year: 2024

Volatility Contraction

Before an uptrend begins, the price will contract, forming a tradable range.

After the stock snaps back up at the Reversal Extension, the price will consolidate under the moving averages.

The stock may work lower to retest the lows or move sideways while the trading range tightens. This gentle drift lower is setting up a buy area.

During a selloff, the 10 and 20-day moving averages show space between them as the price drags them lower. When the stock consolidates under the moving averages, it will eventually begin to tighten.

Another key to recognizing that a new uptrend may commence after a confirmed bottom is a change in the volume's character. Look for distribution volume to decrease while seeing an increase in accumulation volume.

Symbol: CLS
Company:
Celestica
Year: 2023

Forming A Pivot

A pivot point is a critical price level on a stock chart in which the direction of a trend may continue or change.

The subtle price movement fluctuating between the moving averages and the lows forms a pivot point as the stock continues to retest an area. Price will make new lows, rally back into the moving averages, retest the lows, and then retest the moving averages.

The Wedge Pop is the ideal buy area as it is the first pivot point to break at the early stages of the Cycle Of Price Action. This level will confirm that the stock has changed its character, and an uptrend will begin.

Trading through a pivot can help guide us in two ways:

  • If the price continues up through a pivot, the trend should continue in that direction
  • If the price fails at the pivot and reverses lower, then the timing isn't right yet

Symbol: MSTR
Company:
MicroStrategy
Year: 2024

Price breaking through a pivot sets the motion of the trend. Pivots and bases provide ideal tradable areas so we can ensure our position favors the trend.

Wait for the price to consolidate along the moving averages after a reversal.

If we take out the pivot, we should go higher. We shouldn't own the stock if we fail here and can't go higher.

Pivot points can also help us control our risk while maximizing gains.

  • When the price breaks above, let the trend play out as it follows the Cycle of Price
  • If the price breaks down, be quick to cut any losses

Symbol: MHO
Company:
M/I Homes
Year: 2023

Trading The Wedge Pop

A common misconception about the Wedge Pop is that it involves simply trading through the moving averages. Instead, focus on the price bars and look for accompanying volume.

Price consolidation sets the level to trade against, while the moving averages help guide the direction of price movement.

Wait for confirmation while the price consolidates and forms a pivot.

Go long on a powerful price bar with increased volume when the stock trades through the pivot.

Starting a position early in the Cycle Of Price allows traders to hold the position longer and let the cycle unfold.

Symbol: VNT
Company:
Vontier
Year: 2023

Gaps

An imbalance of buyers and sellers can be observed when there is a gap between two price bars.

Oliver Kell advocates that when there is a gap, “the street is caught off guard.”

Gaps can be subtle or large but indicate traders are likely miss-positioned and need to reconsider their position.

Unfilled gaps signify strength, whereas smaller gaps may be filled by retesting the previous close. Massive gaps accompanied by huge volume will confirm a trend continuation as the price breaks through a pivot.

Most wedge pops that begin with new powerful trends start with gaps. Large unfilled gaps with increased volume display powerful momentum that changes the chart's character.

Symbol: RCL
Company:
Royal Caribbean
Year: 2023

Indices And Stocks

Applying the Cycle of Price to the general stock index and individual stocks helps keep our focus on the leaders in the new cycle.

Remember, when the index is bottoming, we are screening for stocks with relative strength that is still near highs.

As the index forms a Wedge Pop, the leading stocks will be further along in their Cycle Of Price.

When strength comes to the market as a Wedge Pop, the strongest stocks will break out of their bases and make new highs.

Symbol: QQQ
Company:
Invesco QQQ Trust
Year: 2023

The market followed a three-wave down correction ending in the Fall of 2023. Notice how the first two potential Wedge Pops failed with no increase in accumulation and consistent distribution volume. The Third Wedge Pop has three unfilled gaps.

When comparing CRWD at the same time frame, notice how the stock begins to trend. As the market continued to make lower lows, CRWD made higher lows and saw increased accumulation volume as it rode the moving averages higher.

Symbol: CRWD
Company:
CrowdStrike Holdings
Year: 2023

Putting It Together

The Wedge Pop is a tradable confirmation that the market or stock has bottomed and will begin a new uptrend as it follows the Cycle Of Price.

Wait for volatility to contract after finding a low.

Buy a stock as it breaks through a pivot that forms against the moving averages.

Let the Cycle Of Price unfold, allowing the moving averages to guide the stock higher.

Be on the lookout for volume spikes and gaps. The accumulation volume and strong price action confirm the momentum.

Recognize the Wedge Pop on the general stock index and buy the leading stocks further along in their Cycle Of Price as they break out of bases.