Tackle Today: The V-Shaped Recovery
January 14, 2019
Last update: August 2021
≈ It’s tricky business. ≈
The rapid declines of prices in December followed by an extremely bullish start to the year has created an uncommon, but well-known pattern on many charts which many traders refer to as a V-shaped recovery. While this term has its origins in economics referring to recessions and recoveries, the V shape produced on charts has made it an easy phrase for traders to borrow from the field of economics.
From a technical perspective, one common component in many V-shaped recoveries is the absence of significant horizontal support and resistance levels during the decline and subsequent recovery. An absence of significant horizontal support and resistance creates an environment where prices can fall and rise very rapidly as traders and computer algorithms ride the momentum wave until they hit a support or resistance level (or one finally forms). During these time periods, breaks of intra-day and multi-day support and resistance become very powerful signals. Quite frankly, there has been no better signal in the world of trading over the last month then the break of intra and multi-day support and resistance.
As we start the week many charts, including the broad markets themselves, have risen to old support levels that were broken. One principle of technical analysis is that old support can become new resistance. Will this occur? What about earnings season which is starting up…how will impact this significant point on the chart after such a volatile ride? What historically happens to V shape recoveries after the initial formation? These will be the items we discuss at the Coaches Show on Tuesday night at 8:30 P.M.
Chart of the Day: Tricky Tricky
Dover Corporation (DOV) is just one of many examples we could use to illustrate a V-shaped recovery discussed in today’s Tackle Today. This pattern is certainly not common (and as mentioned extremely tricky) but serves as a reminder of the power of momentum and power and profitability of directional trading.
Video of the Day: How to Use Put Options as Insurance
Coach Noah explains what a Put Option is, how to and why you should use it as insurance.
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