Tuesday, April 17, 2012

Topping vs. Correction

MetaStock SPRS Series - Week 64 - TechniTrader® Stock Discussion for MetaStock Users - Topping vs. Correction - April 16, 2012
By: Martha Stokes C.M.T.

Our recent Webinar, High Performance Trading Simplified, was a huge success. I appreciate all of your thank-you’s and compliments. It was pretty packed with information so be sure and check out the video either at MetaStock or TechniTrader websites.

One of the more important technical skills a trader needs is to determine whether a stock is actually topping OR if the stock is merely correcting after running up too fast to sustain.

Today we are going to study FAST.

The goal is for you to learn to determine whether FAST is topping OR if this is a correction that will form a short term bottom and then start moving up again. Since stocks tend to run with momentum out of a short term bottom, this kind of analysis on stocks correcting can offer some quick swing trades as the market recovers and returns to upside action.

It can also help avoid selling short a stock that is not going to move down much.

Chart 1

As you learned in the webinar, hybrid indicators are critical to properly evaluate what is going on. You can also see on this chart all the icons I have set up so I can quickly move from trading style template to the next one. This allows me to analyze stocks at a very fast speed and with more accuracy.

TTQA is what we are studying today. We can see that TTQA started out with smaller bars, the size of the bars is important. So in April of last year the institutional activity was lighter than in November as an example. We also know that institutional traders were short term trading this stock.

Even while institutional investors were buying for a longer hold. That is what the green to red to green represents. We can also compare the size and duration of the green versus red TTQA and get information on who controls the large lot activity, the buyers or the sellers. Clearly there are more long green bars than red bars, so buyers are dominating even while the stock encounters retracements and corrections that instigate some selling patterns on the short term trend.

The last green TTQA is February to March and is smaller fund activity along with some trading activity. The candles are smaller and volume tells us that these are smaller lots. Then, FAST hits $55 and drops vertically with sudden red TTQA. This is the effect of High Frequency Trading formulas along with some pro traders selling against the smaller lots.

The bounce up occurs at a weak support level.

Chart 2

My next template has TTVA and TTFF on it to show flow of funds and volume accumulation or volume distribution.

Even before the stock started to drop with big black candles, there was some rotation going on. TTQA dropped below its oscillation sub-ordinate indicator (see the webinar to review this term) and dropped vertically.

So what is next?

This is your homework assignment: Determine the support areas that will hold price at that level for a bottom, either on the short term trend, or the intermediate term trend.

Also, is this a true top indicating a long term downtrend? Or is this just a short term correction?

More next week.

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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