Wednesday, September 19, 2012

New Bottom Formations

MetaStock SPRS Series - Week 86 - TechniTrader® Stock Discussion for MetaStock Users - New Bottom Formations - September 17, 2012
By: Martha Stokes C.M.T.

With the Market Structure changes that have occurred in recent years, many old-style technical patterns are disappearing and new patterns are emerging.

These new patterns are most obvious on the short term trend. This is also the trend time frame that most retail traders use to trade short term for monthly income.

One big change recently is how bottoms form.

Most retail traders have learned about the W bottom, Triple Bottom, V bottom, Bowl shape aka cup, and the inverted head and shoulders pattern.

A common bottom that is occurring these days is a basing pattern where the stock moves sideways for a period of time building more of a platform, than wide sideways pattern that creates the W’s, triples, and Inverted Head and shoulder bottom formation.

This is a sideways pattern that is wider than a consolidation, but is not a trading range as is normal to create the technical bottoms you have learned.

A platform is distinctly different than a Trading Range.

A Trading Range has varying highs and lows with numerous inter range lows and highs. The inconsistency of the trading range sideways action makes it extremely challenging to trade unless the range is very wide, 10-100 points as an example.

The Platform is often a “gottcha” for swing traders who are either trying to trade the short term runs within the platform, or are still trying to sell short even while a bottom has commenced. The problem that faces most traders is the fact that the basing platform, doesn’t resemble any bottom they have learned from the older style technical analysis so prevalent around the internet.

Since most traders are using out-dated technical analysis as the basis for their trading, they are handicapped and have lackluster results that are disappointing and frustrating.

Chart 1

FFIV is a technology stock. It is also a leader in the Cloud Industry which is causing more giant to large sized funds to double up on its stock. It had a period of selling earlier this year as it reached a new high. Now it is forming a base as its bottom. There may be sufficient points for this $100 dollar stock to trade the runs within the platform however, at some point this stock is going to move suddenly. Indicators show quiet accumulation along with intermittent HFT activity.

Chart 2

TTVA shows it reached an extreme pattern of volume before commencing this basing bottom formation. Meanwhile money has been flowing into the stock steadily over the summer.

Chart 3

The TTRSI shows that the base is starting to gain energy and is starting to compress. Compressions tend to lead a sudden move.

Chart 4

The weekly chart shows that the base is forming at a prior low well above the severe, extreme low of the 2011 dump when politics caused stocks to fall abruptly.

Basing patterns for bottoms are becoming more common. They form at prior lows that are higher than a severe low, especially if that severe low was caused by something beyond the scope of the company and its business.

Basing patterns often show energy and bias within the pattern exposing giant fund activity before the stock moves. Typically it is High Frequency Trader activity that causes the sudden move out of the base.

Bases can last for several weeks to months. The key is to have all the indicators that expose dark pool activity lining up.

Dark Pool activity is very easy to see on the charts because of how they buy into a stock, accumulating incrementally within a tight range over an extended period of time.

This consistent buying pattern is what creates the basing bottom formation. Since Dark Pools funds can control price precisely, the wider Ws, Triples, H&S, do not form as easily when the Dark Pools are active.

Learning the new subtle changes to technical patterns is crucial for your success as a retail trader. Your advantage in the market is your ability to see the footprints of the other market participant groups, and then trade accordingly.

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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