Friday, June 19, 2009 9:34:07 PM
Double Top Pattern:
A double top occurs after a stock has enjoyed a protracted move up. As interest in the stock grows, people are willing to pay more for it. At some point the price becomes to high, (TOP #1) and a correction occurs.
As the price falls speculators are shed until the price reaches a point where the stock stabilizes. This is called a "reaction low".
The next thing that happens is usually some sort of earnings report or PR which causes more interest bringing in new buyers, and trades from those that wish to 'average down'.
As new buyers come in, those that bought TOP #1, as well as many previous holders who missed the top and endured the correction without selling, are looking to get out.
There is normally some talk of new highs as the price approaches the old top. As a new wave of players exit, downside volume increases and TOP #2 occurs.
A technical target is derived by subtracting the reaction low from TOP #1 and then subtracting the result from the reaction low.
In the chart below, Top #1 is 112.19 & the reaction low is 70.62, making the target 29.05.
CHART:
A double top occurs after a stock has enjoyed a protracted move up. As interest in the stock grows, people are willing to pay more for it. At some point the price becomes to high, (TOP #1) and a correction occurs.
As the price falls speculators are shed until the price reaches a point where the stock stabilizes. This is called a "reaction low".
The next thing that happens is usually some sort of earnings report or PR which causes more interest bringing in new buyers, and trades from those that wish to 'average down'.
As new buyers come in, those that bought TOP #1, as well as many previous holders who missed the top and endured the correction without selling, are looking to get out.
There is normally some talk of new highs as the price approaches the old top. As a new wave of players exit, downside volume increases and TOP #2 occurs.
A technical target is derived by subtracting the reaction low from TOP #1 and then subtracting the result from the reaction low.
In the chart below, Top #1 is 112.19 & the reaction low is 70.62, making the target 29.05.
CHART:
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