Page 63
Â
- A stock that’s been forming a base: Bases shake out the sellers, making it easier for buyers to move the price up when critical mass is reached, such as when Intel gapped up in mid-April.
- A generally positive look to the chart: Refer again to Figure 4-3, and you see that the right side of the chart is clearly higher than the left side of the chart. That’s a sign that momentum is on your side and that it’s well established.
- Rising volume on days in which the price of the stock is rising: This is a sign of confidence on the part of buyers and is clearly pointed out in
- Falling volume on down days: This is a sign that buyers are feeling okay about their decision to own the stock and that they like the way the stock is acting. Comfortable buyers don’t sell a stock too soon, thus the up trend has a better chance of staying intact.
- A stock that has held at key support levels and seems to find buyers at that support level: Intel meets the criteria in Figure 4-3. Steady or rising prices at support levels are a sign that buyers are still interested in acquiring this stock.
- A good show of momentum: In Figure 4-3, the breakaway gap in the middle of the chart is a great clue that momentum is on the side of the buyers. When a stock gaps up or down, it indicates that buyers (gap to the up side) or sellers (down side gap) have responded to some event in a very significant fashion. A breakaway gap is one that is accompanied by high volume and that is usually followed by higher prices. Gaps are also important as gauges of the commitment of buyers or sellers, as they act as support and resistance levels. Especially when gaps are tested on lighter volume than the day the gap was created. Light volume test of gaps shows the market doesn’t have necessary energy to push through the gap. In this case, the top of the breakaway gap acted as an important support level.