What is a P&F Quadruple Top breakout?
The Quadruple Top is a Point & Figure buy signal. A bullish breakout pattern, involving a rising column of Xs, exceeding three preceding columns of Xs. The prior columns of Xs are across the same box level and collectively form a resistance ceiling. The fourth column holds responsibility for the upside break through resistance, thereby activating the Quadruple Top breakout. Upon pattern confirmation, a trader may confidently assume an upside price extension follows.
In essence, the Quadruple Top signal follows a period of price consolidation. The pattern's build up serves as a pause-for-breath following an over-extended bull market.
Psychology of a Quadruple Top pattern
The development of a P&F Quadruple Top buy signal severely tests the patience of investors given its drawn out nature. The range-bound swings can last months to years. However, the upside breakout when it arrives, often triggers a tsunami of buy order activity. Traders that are short place stop-loss orders just above the ceiling of X columns. The subsequent short-squeeze is powerful as the shorts rush to the exit enmasse. As a result, a sharp rally invariably follows activation of a Quadruple Top, with the price forming large price gaps northwards. Patient long holders rejoice!
How to Trade a P&F Quadruple Top?
Following activation of a Quadruple Top, charts should be analyzed further to gauge probability of success.
- The primary price trend for the asset must be up. Trading above a bullish trendline is vital.
- The chart should not be in a bear market, since the upside breakout could rapidly turn, a trap.
- Look for other successful buy signals preceding the pattern, that will add confidence in the upside extension following through.
- A bullish relative P&F chart is imperative. The relative chart should be trending up on a medium to long-term basis. The only time a weak relative chart would be considered is when the ratio has successfully visited a long-term relative horizontal support level and is showing technical signs of a turnaround.
- Sentiment should also be considered in relation to the pattern. If the Point & Figure Quadruple Top formed during a period of bad news-flow, the signal should be stronger. Short sellers who entered on the news will rush to cover and that will feed the rally.
Entry is best sought a couple of weeks following Quadruple Top activation. Resistance would have been in effect for some time and therefore the breakout would have been obvious, chased by a wave of new long positions. The market will try to shake out some of those positions via a minor retreat. As that process unfolds, an entry window presents, providing no sell signal is generated.
As with the Triple Top, be prepared for a possible bull trap when playing a Point & Figure Quadruple Top. Chances of failure will be high if the general market is locked in a range of indecision.
Where to place a stop-loss?
Initially, one box beneath the prior column of Os. Any higher than that could take a long position out on a natural pull-back or evolution of the pattern into a bullish Catapult.
Following pattern activation, as the uptrend climbs, the stop could be raised to the box under the next completed down column of Os (pull-back). A pull-back of Os would be deemed complete when a 3 box reversal occurs back to the upside.
How to determine a price target from a Quadruple Top?
A horizontal count is our preferred method to calculate an upside objective for this particular buy signal. This is a wide pattern and therefore often results in a prolonged and lengthy up move. The horizontal count will capture that large projection potential.
Quadruple Top Breakout Examples
Low Pole precedes Quadruple Top
Ahead of the August 30th 2019 Quadruple Top buy signal on the Seagate Technology chart, a Low Pole printed. The latter positive pattern, forewarned of the successful upside breakout.
Earnings release trigger Quadruple Top
2019 third quarter earnings for Hilton Worldwide activated a Quadruple Top breakout. Preceding the buy signal, a pair of Bear Traps. New record highs implied by the pattern's target of $104. Additionally, the 2019 rising trend reasserts.
Relative ratio buy signal
The Wendy's Point & Figure chart below plots a relative ratio against the S&P 500. Breakout signals, such as the Quadruple Top, are just as effective on relative charts, as they are on price charts. The Quadruple Top example here occurred following confirmation of a 3SR, the failed break of a support shelf dating back to 1998.
Need for patience
Michael Kors confirmed a tidy Point & Figure Quadruple Top in early August 2018. The buy signal followed sideways swings that persisted for several months, much to the frustration of investors! However, patience, as always, paid off.
Quadruple Top terminating a correction
A fair few interesting patterns on the chart of RH. Perfectly positioned PnF Quadruple Top built up in March 2018, itself the bottom of a correction that started late 2017. Following pattern activation, the price of RH rallied 100%!
Preceding breakout activity
In a research report at the start of August 2018 we highlighted a Point & Figure Quadruple Top on the chart of Casella Waste Systems. The pattern appeared during a strong uptrend, preceded by a series of Double Tops, adding confidence. A year later the price is trading around $44, some 50% plus of upside since the Quadruple Top buy signal activated.