Pullbacks after starting a run

[stargazer]

Hi all

I am fairly certain we all have had the experience of having a stock go up in SP and then pullback.

Are there any reasonable indicators or clues as to determining whether the pullback temporary and then to spring onwards and upwards to form new highs etc.

OR

To identify when a pullback doesn't rebound as expected and keeps going down back to where it was. Recently POS, AGS, IMI is a good example recently.


Cheers
SG

 

[Sean K]

I look at support levels. If a stock breaks up, and consolidates above the previous resistance now support, then it's still going up. Once it breaks that support, the trend may have reversed/reverted.

 

[tech/a]

Yes there is.
Dont have the time to go in depth.
The key components.

(1) Background
(2) Range
(3) Volume.
(4) Tests
(5) Gaps.

Look at POS and see what all that is telling you from 25/6 to now.

Support and resistance would not have helped here I'm afraid.

 

[Sean K]

Yes there is.
Dont have the time to go in depth.
The key components.

(1) Background
(2) Range
(3) Volume.
(4) Tests
(5) Gaps.

Look at POS and see what all that is telling you from 25/6 to now.

Support and resistance would not have helped here I'm afraid.

No, I wouldn't apply S&R to massive gaps ups or spikes like in POS. That would be idiotic wouldn't it.

 

[Sean K]

But AGS is a better example of S&R and going for a run. The stock has gone on a great run from mid Apr with support being respected until it starts to head through the upward support line. A couple of pretty ordinary candles and it clearly breaks down.

 

[Sean K]

And here's another example of a stock going for a 'litle run' respecting S&R until it ultimately falls over. First green circle it's looking dodgy, second one and it's all over.

 

[stargazer]

Thanks for those replies.

tech/a I will have a go re: POS

Background: was weak low volumes and small bars
Range: was between 70c and 90c from MAY
Volume: Increased on 26/6 and continued till 1/7 then dropped the close was on the low end of the bar.
TESTS: not sure about this i take it you mean resistance?
Gaps: Yes it gapped up on the 26th

What would've had to happen for this to retrace say 30-40% and then take off again.
This is where i am unsure when to get out or stay in wanting to get better at this.
Generally if it pullsback on low volume means that theres not much selling pressure...thats my understanding? OR is it the Price range more important and the close.

Cheers
SG

 

[tech/a]

Firstly POS which I have attached the chart isnt really what the thread is about (I think) but is one which some get into and are hesitant about what to do hold or sell. I look for these and get a few (Not as many as Id like) but they ALL display very similar characteristics.Anything that rises in a parabolic fashion---30-50%+ in 1 or 2 days I have found best to play like the chart below.
If you pull up any chart like this you'll see very similar characteristics.

When I have time I'll do a chart ON TOPIC.

What would've had to happen for this to retrace say 30-40% and then take off again

You'd be looking for either.Wide range a very high volume indicating an exhaustion of sellers
OR
Av squat bar with very high volume followed by an up day indicating absorbsion of sellers by buyers and then no supply.
OR
A wide range day with high volume finishing in the top 25% of the bar showing a drying up of sellers and renewed buying--the next day should have fair voulme and be an up day as well.

With this chart after the high there is NO volume without it nothing is changing.
Fair effort though Stargazer---atleast you had a go.

Click on the chart for a bigger Pik

 

[wavepicker]

Some great posts and info on this thread.

As well as volume spread analysis, resistance, fibs, gaps, and trendlines, I like look at the "pattern of the trend" first and foremost. Things such as spaces between consolidations, the time taken to pullback relative to the advance play a big part. For instance if a move up takes 21 days and then struggles down and a choppy corrective pattern in 21 days to the 50% retrace level on diminishing volume then the the market is finding it easier to go up than down.

A first degree countertrtrend usually takes 2-4 days. This is especially true in a blow off or capitulation move and if the market usually trends greater than 4 days it might be a sign that the trend is fractured and a reversal is occuring.

A second degree countertrend usually takes 12-14 days before resuming the trend in a "normally" trending market. Anything more than 21 days generally implies that something more "cyclic" is happening and that also could mean a trend reversal.

An underatding of trends IMO is critical, such as being able to distinguish between a correction and an a impulsion. The types of trends are as follows:-

-Normal Trend(spaces between consolidations) or impulse
-Struggling or overlapping Trend (swings overlap each other)these are corrective.
-Blowoff trend, generally happen in commodities or what's currently hot in the market
-Capitulations( opposite to blowoffs)

Cheers

 

[stargazer]

Hi Tech/a

Yes that is correct it is not about POS it was just one that came into my head knowing it had this happen very recently.

Thankyou very much Tech/a for the time you take to explain things much appreciated.

Tech/a
When I have time I'll do a chart ON TOPIC.

That would be interesting to learn from.

Cheers
SG

 

[Sean K]

Here's a favourite of mine.

You can see the support respected on the daily better, but I like this 3 year perspective.

First green circle, I was concerned, parachute on.

Second one, well out the door.



Actually, I think I held a few free carried for a little while longer... Goose.

 

[tech/a]

The Biggest concern I find is that traders are confused in identifying whether volume is buying or selling volume.

But firstly I must go through some important points to get to the answer.
Hopefully at the end it will paint a full picture. I'm a bit time strapped so please understand that the following may take a few days.

I'm going to use MTN (daily and some weekly) as it has all the aspects I wish to show.All the pictures in the analysis puzzel.I will be attempting to make this as SIMPLE and as CLEAR as possible

Important hint 1
BACKGROUND

Before analysing a trade define WHERE you are relative to the BACKGROUND of the trade. Right now on MTN we have a background of great weakness and are now in an accumulation phase.

I will go through each aspect of the 4 backgrounds and the VSA characteristics common to each.You'll find them consistent on all charts.
Regardless of timeframe! Monthly/weekly/daily/180/120/60 min etc.
I dont use less than 120 min in my analysis any lower and volume and range are non existant in most (There are exceptions) With the small caps daily is often the lowest frame suitable.

Observation

If you cannot determine a clear background in a prospect MY view is to leave it alone until it does show a clear background often looking at a higher timeframe will help clarify---daily to weekly.---there are many many more prospects!

Kennas makes some good points and often price will return to support AREAS but thats another topic I'll stick to VSA on this thread. Combined with Kennas and other analysis you'll see the benifits---itwill eventually become automatic.

 

[tech/a]

Overcoming accumulation.
Some VSA hints on what to look for.

 

[MRC & Co]

Hey tech, one question, when you use the 180min charts on equities, don't you find volume skewed due to different timeframes? For example, higher volume in the first 180min bar after open.

Just one way why I find it a lot easier to trade daily charts.

 

[tech/a]

Hey tech, one question, when you use the 180min charts on equities, don't you find volume skewed due to different timeframes? For example, higher volume in the first 180min bar after open.

Just one way why I find it a lot easier to trade daily charts.

Yes BUT
On accasion I want to see the makeup of that EOD bar.
What happened after that initial opening volume spike.
Was it supported? Did it pull back within it on low volume to have the open tested---then go on with it? From a single bar ---the EOD bar I cant tell.
Using say a 120 min bar I have 4 bars to paint the picture of the one bar.
Plus another 4 for everyday before it,this shows me the type of build up.

The chart below is a daily of MTN and you can see the difference in reading 5 EOD bars to one Weekly bar.

This chart answers the question on identifying pullbacks.V changes in trend or corrections.There is other analysis I use as well---the pullback must be no more than 50% of the last significant HIGH and LOW.32% is very strong. Pullbacks are no more than 3-4 down bars. Have a look at the rest of the trend and you'll see consistancy.

 

[tech/a]

So.

During an accumulation phase and out of a period of consolidation

We are looking for increase of demand.Absorbsion of sellers by buyers this can be seen in high volume tight range days which refues to go lower,prior to---
A burst out of the phase either through Gaps or wide range larger volume days
Where clearly buyers are looking for sellers and are prepared to pay more.

During an up trend

We are looking for demand breaking from level to level making new highs Normally accompanied by higher than usual volume.
Pullbacks are identified by low volume down days with the majority of pullbacks 4 days or less,Ranges are smallish. Gap ups often mark new buyers pushing through levels.We are looking for buyers swamping sellers,and buyers holding--forcing new buyers higher often resulting in wider range high volume days breaking new ground.

During a distribution phase from an uptrend

We are looking for increases in volatility (Range both up and down days).
Volume dries up on upward moves toward current highs. Price becomes capped high volume sees price refuse to go higher.
Down days come on increasing volumes.

In Downtrends

Unlike uptrend volume isnt a prerequisite to price falling it can and does fall due to lack of buyers.Often old buyers are not willing to take losses and as such just hold.Buyers dry up and sellers need to chase price lower for fills on little volume.There will often be days of exhuastive volume where sellers will take advantage of renewed buying activity--bull traps--wide range up bars on very good volume. The next day fails to go on with it and price again falls due to lack of demand often on lower volume.

Coming to accumulation from a down trend

We look for exhaustive volume often seen in a single very wide range very high volume down day. Or absorbsion of sellers by new buyers--characterised by high volume and price refusing to go lower. Followed by rising days on little volume indicating lack of supply.These are periods of whipsaw---after price falls heavily it is terribly rare to see price resume for any length of time in a "v". Consolidation more often than not forms.

From here back to top of page.

 

[stargazer]

Hi Tech/a

When you say an uptrend or downtrend are you talking about the stock in question or the general major trend of the Index.

Modus Operandi:
Would a daily EOD be the go for determining the bars. How many bars back to you look to determine the significance of todays bar.

Whats your take on HGO it went for a burst and has slowly difted down lower volumes is this back to accumulation stage.

Cheers
SG

 

[tech/a]

Star

MTN is a good example of the 4 stages of a stock.
My example is for all stocks/indexes/futures etc.
What I am saying is applicable in all timeframes given enough volume.
As mentioned thats around 120/180 min bars for most of the top 300 stocks.
VSA in some cases with the micro caps is not workable as there is often not enough volume to gauge what the participants are doing.

EOD is fine.
How far back for background porbably a year or so.
With regard to a single bar in context of the current move---the length of the current move. A single bar has relevance over only 4 days max.
By then other bars will tell the story.

HGO.

Ive written quite a bit here.

Whats your take given the info supplied.
Test what you've learnt.
(1) What's happened and why.
(2) Would you buy it now or not and why?
(3) what would you want to see or do you see that makes your decision.

We can watch and see how the analysis developes.

 

[MRC & Co]

HGO is a great example of the various phases also.

Right in the middle of a major support zone now.

I definately know where my bets would be here, or lack there of.

Give it a crack stargazer, nice chart to apply some VSA on.

 

[stargazer]

Great, thanks very much Tech and MRC will be analysing with interest.

Cheers
SG