Monday, April 23, 2012

Topping vs. Correction Pt. 2

MetaStock SPRS Series - Week 65 - TechniTrader® Stock Discussion for MetaStock Users - Topping vs. Correction Pt. 2 - April 23, 2012
By: Martha Stokes C.M.T.

This week we are going to define the areas where FAST, our stock from last week, is going to find support.

Support levels form both from technical patterns as well as fundamentals. This is an important fact to remember if you are strictly a technical pattern trader. Sometimes stocks will fall below a technical support level and then quickly rebound, sometimes stocks will stop well above a support level. Both of these instances are caused by fundamentalists reacting to fundamental price areas that are not technical in nature.

The strongest support areas will always be where technical and fundamentals meet.

FAST continued to slip downward from last week.

To determine where this stock will find support we need to use a weekly chart to see more of the historical data.

On the MetaStock Chart below for FAST weekly, we can see that the angle of ascent is far too steep for this stock to sustain the uptrend. Smaller lots drove price upward after institutions bought in during the sideways action. This is a common pattern. We can also see from TTQA that HFTs and other pros are trading this stock on a shorter term basis.

Chart 1

However, the correction is even steeper than the ascent so bounces are going to occur. It will not be a sheer drop. This stock is running down, not gapping down on news or panic dumping. It is likely to bounce around $48-45, and again around $40.

Chart 2

Weekly charts are not only valuable for seeing longer term support and resistance but also to clearly show how steep the run truly is. Here it looks far less steep than it actually is over time.

There is a broken step, which is a common sell short pattern that is not in the standard Japanese candlestick books because it seldom formed in their ancient rice commodity markets.

This is a pattern that forms in our western markets where institutions and large lots control price and dominate the price action. So different candlestick patterns must be used in our markets.

The broken step is a signal that the downside is gaining more energy and we can clearly see the RED TTQA which exposes when a fund or groups of funds are selling short or selling out. Volume would indicate smaller funds selling with HFTs spurring on the move down. But support is nearby at $48-45 due to a peak in that price range.

TTVA and TTFF also confirm that funds are selling this stock and moving out. If HFTs also start selling short in addition to the selling out, then more momentum action may occur. Bounces will precede runs down at even weaker support levels because we are not in a bear market.

The more important support that will halt the run down is around $42-$43 and again around $26-$28.

This support area information helps you sell short a stock while being aware of how many points are likely before a bounce and your profit to risk ratio.

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
MetaStock Partner

©2012 Decisions Unlimited, Inc.

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