This is one of my favorite patterns in all of technical analysis. Edwards and Magee, authors of Technical Analysis of Stock Trends back in 1948, didn’t know who Kim Kardashian was of course. So they called this pattern a “Rounding Bottom”. When it comes to these reversal patterns, the bigger and more round they are the better. Today we call this formation, the “Kardashian Bottom”.
I think Uranium is a great example of one developing as we speak. Look how big and round this one has become over the last couple of years. We’re looking at shares of Cameco, the leading Uranium producer:
The best part about these big, round Kardashian Bottoms is how explosive the market moves become upon completion. The measured move based on the size of this K-bottom is about 7 points which gives s a target just above 30. But these Kardashian Bottoms are much more powerful than your typical breakouts. It’s difficult to quantify, so instead we use former support and resistance levels for targets.
In this case, I would not be surprised to see us retest those 2011 highs in the 40s. A Kardashian Bottom like this definitely has the potential to reach those heights.
Here are a couple of other examples of the Kardashian Bottom formation that I’ve mentioned on recently. The first is $USDCAD. Look at the nice big round bottom and breakout:
Here is another big round bottom in the spread between the MSCI EAFE ETF which consists of large- and mid-cap developed market equities, excluding the U.S. and Canada ($EFA) compared with the Latin America 40 ETF ($ILF):
And finally here is an example we took from Edwards & Magee in their 1948 publication: Technical Analysis of Stock Trends. This is a chart of the Tractor Manufacturer J.I. Case ($JI) from 1932. Look how explosive the upside resolution was here out of this text book Kardashian Bottom:
Remember, we can apply these tools on multiple time frames and in a variety of asset classes. This is simply a visual display of a shift in supply and demand. We find them on intraday charts and we find them in longer-term weekly and monthly graphs. But without a doubt, the bigger and more round the Kardashian Bottom, the bigger the move becomes out of the pattern.
Tags: $CCJ $URA $EFA $ILF $USDCAD