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To be clear, it is often not necessarily what the market is doing, but how it is doing. Going sideways, or “chop,” can just as easily have bearish undertones if there are wild price swings and high volatility as it can be bullish if the action is muted. So, I am not just looking for the market and individual stocks to merely chop around in order for me to get bullish, but rather for them to tighten up and quiet down considerably.
A good example of the type of action I am looking for is in home healthcare equipment maker LNCR. Note the long base on the daily chart below, which could just as easily be a consolidation before another leg lower as it could be a bottom. So, what to look for? Well, loose and sloppy patterns denote loud, violent disagreement amongst market players, which often resolves in a bearish manner. On the other hand, if price compresses to the point where it is a stalemate, you should be on watch for a bullish breakout as bears have lost their mojo.
On the chart below, note that the “right side” of the base has tightened up as volume tapered off as well. The base has a symmetrical look to it now, and I am more inclined to stalk a bullish upside move than to be prepared for another major leg lower. If the market can somewhat replicate a plethora of charts like the one below, then the bulls would be in a good position for a major upside breakout.
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it is impossible to frown if she is in the room
you dog you
yur killin me…
LoL
I read Playboy “just for the articles” like I read Chess and Wine “just for the charts”…..
Chess -thanks. Great insight. Would love your opinion. I would argue that NFLX is hinting at this formation. While it was weak today I would love your thoughts if the recent trend were to continue. Thanks.
not quite a big base like this, but it is definitely short-term oversold and should march higher with the market for a bit –I’d sell into it though