Blondie,
I'm less interested in weak, just and strong trending categories. The point of interest to me is whether or not a stock seems to be in a sustainable trend. On a bullish stock that would be a stock which is headed either east-north-east or north-east; I would be concerned about the sustainability of a north-north-east trend (aka parabolic).
EOG's stock in '05 is a good example of a sustainable trending stock which is now facing a pullback.
stockcharts.com[h,a]daclyiay[pb50!b20!f][vc60][iut!Lah10,30,5!Lc20]&pref=G
If you look at the chart you'll see the first buy signal on the trend was given after the stock took out the top of the December big downward candle on 1/18, then made a higher low two days later, 1/20, and then rose above the previous high on 1/21. Later signals were given when it made higher highs and higher lows in early February and again in March. Today's bar did not take out the previous low on 3/1 of 43.74, but it could tomorrow. If it did close below 43.74, you would have a lower low. If the chart then rallied but only to a lower high (i.e., something lower than 48.41, then you could take your first, tentative short position via shorts or puts. It might be the beginning of a downtrend, or simply the beginning of chop, it's impossible to know in advance. If it's chop you will get stopped out with a loss; if it's the beginning of a downtrend you will make profits and possibly be presented with further opportunities to add to your position.
Be prepared, react, accept volatility.
Kb |
