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Breakdowns
Breakdowns involve a break in an uptrend or breaching a major moving
average like the 50, 150 or 200
day moving averages. These breaks can spell large moves in the
opposite direction of the prior move.
Every day, numerous stocks break major trends. Technical traders
seek these stocks for candidates
for purchase or shorting.
Stocks can break major trends before the fundamental logic for a
such move is obvious or known.
Generally, a stock breaking below a major moving average will move
down to next major moving average
unless major support creates the demand to stop the fall.
Once a stock has reversed trend, it can get overbought on a reversal
and go back and test the point
where it broke out or broke down. Stocks do not move in straight
lines, they move in saw tooth
patterns.
It is a bad sign for stocks to break down on low volume because,
generally, price follows volume.
Higher volume is a strong positive while lighter volume can presage
a break down that has longer to
go. Often, stocks in a downtrend will experience a climactic sell-
off which allows all the weak
holders to get out of the stock, setting up a major buying
opportunity. Remember, bullish breakouts
require higher volume. Weak volume breakouts normally will not
follow through.
Another pattern to watch for is the "Key Reversal Day". This a buy
signal for short term traders and
investors looking for prime entry points. Key Reversal Days occur on
exhaustions sell-offs where a
stock will gap down at the open, but finish above the prior day
close and at the top of the day's
trading range.
Conversely, a gap open following a long upmove where the stock
trades way up, then closes below the
prior day close and at the bottom of today's range can signal some
important downside action.
http://clix.to/wallmann
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