Class: Bearish, Week, Continuation, Confirmed

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Bearish

  • Two types of stocks can be identified in this search. One is in a long term down trend and the other has gone through a long-term topping pattern and is now showing signs of weakness.
  • Look for stocks that are in a tight descending pattern.
  • Overall market weakness will enhance the probability of success.
  • A tight downward sloping trading channel with a 30-45 degree angle produces the most reliable results. The steeper the slope of the trend line, the greater the chance of a reversal. The longer the duration, the more legitimate the trend.
  • Watch for overall sector weakness.
  • Sell-offs should be accompanied by strong volume.
  • These stocks are in the upper or lower quartile of their 52-week range and they should be trading below the 50-day moving average.
chart

Week

  • The longer-term trend will give us the confidence we need to “climb aboard” and hold overnight positions.
  • Try to avoid volatile stocks with big daily ranges. We don’t want to get “shaken out” of a sustained move. Take smaller positions when trading volatile stocks.
  • If overall market conditions are improving, consider reducing the position.
  • Place protective stops near long term resistance areas.
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