We have been in a Trading Range bottoming Market Condition for a couple of months. This has created many range bound stocks, stuck in a range. However, trading range patterns seldom can sustain for long periods of time. At some point the stock will either breakout to the upside and resume an uptrend, or break to the downside to resume the decline.
Many traders struggle to figure out which direction the stock will take. This is such a common problem for traders that numerous Options Strategies have been developed that try to “straddle” the trade by buying or selling both sides of the market in a combination of calls and puts buys, or a combination of buys and sells of calls and puts. These options strategies seldom work as well in the real market as they do in a demonstration and they tend to limit your profit potential while leaving the option trade open to loss of the cost of the option contract. Not a good idea.
The better way to deal with sideways action, is to learn to READ it instead of trying to trade both sides at the same time.
THOR is a stock stuck in a trading range. But it is exposing price and volume patterns that indicate an upside breakout soon.
The first step to studying a trading range is to define the highs and lows. A quick rectangle around price containing both extreme highs and lows of the trading range helps traders see the pattern better.
Chart 1
Next, determine if recently there were higher lows. Yes there were. In fact there have been 3 higher lows recently with a stairstep trendline pattern developing within the trading range area. This is a signal that the sell side of the trading range is weakening and the buy side is strengthening. It is easy to draw these lines with MetaStock Charting software.
Chart 2TTQA the quiet accumulation indicator that reveals what the dark pools and other large institutions are accumulating has the typical green to gray to green bars indicative of some institutional buying incrementally, which is how the giant funds quietly buy in without disturbing price.
Chart 3Above on the chart we see that TT VA has formed a positive divergence and is moving up and TTFF is showing a rise in flow of funds into the stock.
The trend is upward. Bollinger Bands compressed prior to this last move up. Remember that when using Bollinger Bands momentum moves exceed the BB lines often. Watch for a BB “Flange” that would indicate an overextended BB on a momentum move.
This stock hasn’t yet broken above the resistance highs of the trading range and when it does profit taking is likely intraday. But you can see clearly that all signals indicate is preparing to challenge those trading range highs.
A more ideal pattern would have a compression of the Bollinger Bands prior to the breakout. So a profit taking is likely on the breakout move.
Trade wisely,
Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner
©2011 Decisions Unlimited, Inc.
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