WEALTH UNIVERSITY

[Profe$$or]

STAGE 4: THE DECLINING PHASE (see post this is linked to)

This is a period when the factors that maintained a stock's price during the topping phase give way to the fatigue and pressures of fearful sellers. It shows up on the chart in the following manner: After moving back and forth in a neutral trading range, a stock eventually breaks below the bottom of its support zone. Unlike an upside breakout, which needs a significant increase in volume to be considered trustworthy, a downside break into Stage 4 doesn't necessarily need such a huge increase in volume to be considered valid. A volume increase on a breakdown followed by a volume decrease on a pullback to the breakdown point does signal a very dangerous situation; yet I've seen many cases where a stock moved into Stage 4 on relatively light volume and dropped substantially in the months ahead. Therefore, while a volume increase on the breakdown is even more bearish, don't ever let yourself get lulled into a false sense of security because the volume isn't heavy!, One way or another, you should get out of the stock. If your broker is a fundamentalist, he may try to dissuade you because the earnings and other fundamentals may be in pretty good shape. And the conventional thinking as Stage 4 starts to unfold is usually that the stock is just undergoing a correction. This is nonsense. Once the stock breaks into Stage 4, the upside potential is very small, while the downside risk is considerable.