Bottom Of The Barrel
Whenever you see a rally off a low you have to wonder if it’s a
sign of a bottom or if it is simply a pullback (from the low). Of
course, I try to avoid speculation in my trading as much as
possible, so I look for chart patterns to form which will give me
some type of signal of the style of move, such as bearish flags.
How do I know when a rally is a bearish flag and not a slow
ascending channel? I know after it has broken down. There is no
magic answer or crystal ball which tells me in advance that the
stock is going to break down, so I have to wait for it to occur.
Let’s take a look at several potential bearish flags and
bottoming formations.
The first one on the list is IBM
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IBM |
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PowerRating). This NYSE tech
issue has actually held up quite well and is not nearly as far
off its highs as many of its peers, which is perhaps a result of
its greater diversification. As well, when many newer-generation
traders think tech, the last thing that comes to mind is IBM.
IBM has spent the last five days rallying off a near-term low.
The rally has taken place on average volume and has been in a
consistent point range. Noteworthy on this chart are the two high-volume moves on October 3 and 4, at which point you will see a
new near-term closing low followed by a turnaround. Watch for both a continuation of the current move and a breakdown below the
near-term channel.
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The second chart which has a similar formation is
a much lesser-known name, Artesyn Tech
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PowerRating). Much like IBM, it has been trading in an ascending channel as it rallies off its
lows. Tuesday, it finds itself trading at the low of the channel.
There are several trading opportunities here. First, traders can
watching for a long opportunity on a bounce off the bottom of the
channel, where it may find support. On the short side, watch for
a breakdown below support to complete a bearish flag formation.
Volume has been consistent while it trades in this range. Look
for a volume spike on a move outside the range.
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