Breakdown, Breakdown

• July 23, 2001
• Duke Heberlein

“Surprises often happen in the direction of the trend.” I try to
never forget that when someone tells me that a stock or futures contract must
go up just because some indicator or analyst is saying that a stock is
oversold and due for a bounce. Today was a prime example of that with Polymedica
(
PLMD |
Quote |
Chart |
News |
PowerRating).

 

10:09:40

Plunge Alert

PolyMedica (PLMD)
has plummeted 6 points since the opening bell, now down 10.08 to 37.45.

 

 

Right after the alert goes out, PLMD forms the third bar in a
pennant, then proceeds to drop another 5 points.

 

 

For intraday trading, there are basically two styles: going with
the flow, or trading the trend, and contra-trend strategies. Both have their
merits and are employed successfully by a myriad of traders. As you can see in
the above chart, all trends must end — PLMD bounced for 6 points off the
intraday low — at a spot near the June 29 wide-range low. If you are going to
trade counter to the trend, learn to take note of key alert zones like this.
Otherwise stick with the trend. While you may be wrong once in a while, your
overall odds will improve. Remember, as well, to always use and honor your
protective stops.

Until tomorrow,

Duke