Re: NBR ... >>> That area of high volume in February, is that because many people felt it was support due to the previous pivot low being in that area and they entered the stock there and hence increased the volume of the shares traded? >>>
Yes, that was one of the reasons.
One of the things that charting helps me to identify is the classes of traders that have the potential to move price. I look at what might cause day traders, swing traders, momentum traders, intermediate to long term traders and value investors to buy or sell.
Swing traders and momentum traders are trend followers. An up trend is identified by a series of higher highs and higher lows. A down trend is identified as a series of lower highs and lower lows.
The difference between a novice trader and a professional trader is that a novice trader will try to capture the price low while the professional trader will try to capture the price point where the character of the trend changes.
On Feb 7, you had the professional trader setting up the novice. That's why you see so much volume. You had both bulls and bears trying to take control of price. The novice trader was buying what they thought was a dip. There is a significant difference between buying a dip and buying a falling knife. I found out that's what provides the professional trader with an edge. The professional trader knows the difference.
Here is the chart on Feb 7 again.
stockcharts.com[h,a]dahlyiay[d20051127,20060207][pf][vc60][iut][J70583437,Y]&pref=G
The next day, the novice trader via the buy the dippers and other emotionally driven traders provided the buying power to provide some positive price action as price was up $1.04 the next day.
stockcharts.com[h,a]dahlyiay[d20051127,20060208][pf][vc60][iut][J70583437,Y]&pref=G
The novice trader, focusing on trying to get a good price for their equities, thought that buying a professionally driven dip was a good idea. The professional trader doesn't focus on price, they focus on the trend and pivot points. Their main concern is the right entry, regardless of the price. The professionally driven dip almost never provides an entry with a high probability of success. Professional traders sold into and shorted the buy the dippers and those who think the fundamentals suggest higher prices without taking market conditions into consideration.
The updated chart confirms it as NBR is now $20 off it's recent high.
stockcharts.com[h,a]dahlyiay[d20051127,20060310][pf][vc60][iut][J70583437,Y]&pref=G
In looking at the longer term chart, which is what mutual fund managers look at, the 200 day moving average is the same as the 40 week moving average. Mutual funds will begin to sell shares when a stock that has been in an uptrend closes below the 40 week or 200 day moving average.
We not only had a change in the character of the trend on the daily chart, we have a change in the character of the trend on the weekly chart. For the first time in over a year, price closed below the 40 week moving average. Notice the steep price drop on the weekly chart when that event occurred.
stockcharts.com[h,a]waclyiay[d20050311,20060311][pb40!b20!f][vc60][iut!Lc20]&pref=G
Money flows had been suggesting this price correction was coming. They were showing a negative divergence that was hard to miss if you know what to look for.
In the above chart, note where the money flow indicator was back in late September when price was at $73.90. Then note where price was when NBR hit a price high of $82.70. Money flows were not leading price. They were not confirming price action.
Those are the types of divergences that professional traders look for.
dabum |
