When looking at a chart there are several things to look at. There's price and volume of course, and there are trendlines. But there is also the pattern itself.
The first thing I look at, when writing my columns or picking stocks for TheStreet.com Top Stocks is volume. The obvious first step is to see if it is expanding or contracting. If we look at the chart of Citigroup(C Quote) below, what we can see is that volume was quite high at Point A. Point B's low had almost as much volume as Point A had. Therefore the downtrend is still intact. But when we get to point C we see volume actually contracted on that low relative to Point A and Point B. That is the first sign that the selling is drying up. As it happens Citigroup not only saw lighter volume on that latest whoosh down, it also opened on a gap down followed by a gap up. This is not a perfect textbook example but when you have a gap down (or up) followed by a gap up (or down) it leaves what we call an island reversal in place (circled on the chart). Like an island there is nothing around it.- Loading Comments...
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