Tackle Today: Spotting Tops
April 5, 2022
«Here are six common signs you see at market tops.»
Traders,
Historically, the stock market has risen in three years out of four. That means most of the time equities are in an uptrend. But sometimes, the trend ends. Uptrends shift to downtrends; bulls give way to bears. While it can happen all at once, it usually doesn’t. Instead, tops are a process that plays out over time.
Price peaks are similar, not exact. And if you know what to look for, you can usually identify when the trend is weakening and most vulnerable to reversing. Here are six common signs you see at market tops.
- Slowing momentum or compression in the distance between pivot highs.
- A double top or “M” pattern.
- A head-and-shoulders pattern formed by a lower pivot high.
- Breaking horizontal support zones to form a lower pivot low. This usually completes and confirms the previous two patterns.
- Breaking longer-term moving averages such as the 50-day.
- A kiss goodbye that arrives as a lower pivot high after breaking support.
I listed them in chronological order to provide a sense of how tops progress. You don’t always see all six.
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Join Tackle Trading on the next Technical Analysis webinar where Coach Matt Justice is going to take a deep dive into how price trends reverse. It’s called The Art of the Reversal. You will learn everything you need to know about how to spot, analyze, and trade the various reversal patterns that end (and begin!) trends.
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Video of the Day: Learn the Types of Trends In the Market
A trend can be defined as the overall direction of a stock. For simplicity’s sake, there are three sweeping categories of trends:
• Uptrends – a series of higher highs and higher lows
• Downtrends – a series of lower lows and lower highs
• Sideways – trading horizontally between floors and ceilings or a channel
Chart of the Day: Elon Buys the Blue Bird ($TWTR)
Elon Musk is taking his Twitter addiction to the next level. News hit that the eccentric billionaire bought a 9% stake in the social media company, sending TWTR stock to the moon.
Today’s line up
Tales of a Technician: How Pinterest Found a Bottom
Pinterest (PINS) presents a perfect case study on how downtrends finally bottom. Of course, there’s variation between examples and not every bottom follows the same script. But, I’m finding Pinterest’s behavior over the past month to be a prime case study.
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Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.
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