The market value of a stock is a determined by pure supply and demand
battles between Bulls and Bears.
This supply and demand is constantly changing on a minute by minute basis.
There are probably hundreds of both rational and some irrational factors
that play into a stock movement.
I believe that stocks move in trends that can last for a long time. During
these major trends, minor counter trends do develop and the trader tries to
take advantage of movement both to the up and down on stocks.
It is also very common to see stocks trade in a range until supply or demand
factors resolve themselves.
It is moves from these consolidation areas that present some of the best
trading opportunities.
These consolidation patterns can take the shape of rectangles, symmetrical
triangles, ascending triangles, descending triangles, flags, double tops or
bottoms and even triple tops and bottoms, head and should formations and
rounding tops or bottoms.
It sometimes amazes me how the stock market follows the same crowd behavior
and keeps repeating these patterns over and over again. The basic nature of
the markets fear and greed exhibits itself everyday.
Let’s examine one of these formations.
Let’s look at a rectangle formation in
Oracle Corp.
It is too late to trade this stock, but it makes a perfect example of
support and resistance breakdowns.
For the past week, ORCL has been in a consolidation range between 79 and 82.
Today, October 3, 2000, ORCL broke down bad.
This was despite an analyst upgrade this morning.
After the first 2 hours of trading, ORCL broke below support at 79. This is
the area an exit and/or short should have been initiated.
ORCL continued to fall the balance of the day finishing at 69 �.
As I mentioned, it is too late to trade this pattern, but I want to show you
this today as an example of how a breakdown should look.
Make sure you are watching your stocks for this pattern. Stocks that are
breaking down, tend to keep breaking down.
