I don't know about you, but I have a lot of fun drawing in all the trend lines on my p&f charts, whether I print 'em off of Tom's site or in my Chartcraft Quarterly chartbook. I've been told by Mike Burke of Chartcraft that my style of drawing trendlines is similar to the late Earl Blumenthal, in that I extend them "as far as the eye can see". If the trend line comes into play months or years later, then that's what I draw 'em for. Getting down to specifics, put simply, when there's a downside break of the bullish support line (bsl),by the strict definition of what happens thereafter, the line is considered invalid from that point foward. From Chartcraft:
".....This line will disappear when it is touched by a downward price change"
Problem is, often a stock will rally back above that most important of trend lines, and to my way of thiniking, it's back in play. I've discussed this very topic with Jan and it's she who encouraged me to post the topic of our discussion for all to see. There are many, many examples of this (CMB is another), but I used the following example of USX US Steel (X) in my original message to Jan and I repost it here:
"Take a look at USX US Steel (X). The stock has a bullish support line
from the low of $25 from 7/97. The line was broken to the downside in
October at $31, going to as low as $27. The stock subsequently rallied
back above this line in February at $34 and has been above it through
today. Most p&f chartists, I assume, would draw another bullish support
line at the $27 December low. The difference being that the "invalid"
line is now at $36 and the "valid" line is at $30. I feel there is merit
to the "original" bullish support line."
I even got Tom in the act in my message to Jan when I quoted him from page 19 of his book in his discussion of the bsl:
"The first Bullish Support line will always serve to be the long-term trend line and may very well come into play years later."
I hope I'm not taking that quote out of context but that line sums up my thinking on the issue. If a stock can rally back above it's long term support, even after breaking it to the downside, then that bsl should once again be considered valid support. That bsl could be considered even stronger support if a stock is able to rally back above it after trading below it for a few days, or even "years later".
Thanks for listening everybody. I'm quite anxious to hear what others do in similar situations, and please post your thoughts on the thread for all to learn from.
Best to all,
Bruce |
