When Fading Momentum, Watch For These Signs
Everybody loves a good ride on
a stock with ‘legs.’ As they say, the
trend is your friend–but
when an issue has gone up dramatically, the trend can sometimes become less
friendly in a big hurry, especially in momentum issues. One way to determine if
a stock is close to reversing, is if the daily chart is showing multiple gaps in
the direction of the trend. Typically, by the third or fourth gap–known as an
exhaustion gap–if one watches the intraday chart, quite often an
opportunity to play the stock by fading the crowd will develop with all the
usual traits of a high-probability trade in place.
10:47:50
Intraday/Daily Setup Alert
Magal Security (MAGS)
looks to be a potential reversal short–up 4.56 at 37.01. The stock has had
four daily chart gaps to the upside in the past month, as price has gone from
roughly 9.5 to over 40. Today’s gap up (exhaustion gap?), is now being
challenged by an intraday consolidation within an established 5-minute chart
downtrend, beneath the 8-period ema. Triggers for potential shorts are set below
36.70.
No doubt that GAMS has had legs on the daily. Oops, my bad, I meant MAGS, but
no doubt there was a nice intraday leg down anyways.