TradingMarkets Chart of the Day
Today’s Chart of the Day covers a classic swing trading chart
pattern: the pullback. A pullback occurs when a strongly trending stock
makes a correction before resuming the trend. So if a stock is on an
uptrend, a pullback happens when the price has one or more down days, allowing
for a better buy-in price. For a downtrend, the pullback opportunity is
when price shoots up a little before continuing the move down.
Cummings, Inc
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PowerRating) has been in a strong uptrend since the
middle of June. Price has been above the 200-day moving averages for
months, and made a move above the 50-day near the end of June. Therefore,
we are looking at a stock that is in a solid uptrend. On July 3
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PowerRating)
began a pullback to its 50-day moving average, losing under 1% of its stock
price. Given the fact that this stock is a technically strong stock in an
uptrend, we can look at this drop in price as a pullback. Watch over the
next few days to see how far
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PowerRating) will come to its 50-day moving averages
before it resumes its move up, and look for price to near resistance at the
previous high of $123.50.
Pullbacks are a very simple and powerful pattern to look for
when you are doing your trading homework. Be careful, though, not to let
your pullback go too far beyond your buy-in price; always use protective stops
to minimize your trading losses.
John Patrick Lee