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Thursday, March 31, 2011 9:34:33 PM
While SFMI/GHDC shareholders understandably ache about the recent downtrend, I'd like to point out an interesting TA trend that is occurring. When you superimpose the Accumulation/Distribution line (in orange on the below charts) behind the daily candle chart for SFMI you will notice the not-so-insignificant divergence that is occuring between the declining share price and the A/D line. While the A/D line is not significantly rising (more or less leveling off), it is significantly diverging from the downward share price.
What does this mean? Well, since the Accumulation/Distribution line is a momentum indicator it should reflect the direction that money is flowing. However, the money flow is not corroborated by the share price since the downward share price should correspond with a downward A/D line. This divergence is oftentimes used as a signal for a trend reversal that may be at hand.
Click here for a good explanation of the trend and how it signals a trend reversal.
Since the SFMI/GHDC charts generally mimic each other's movements based on the symbiotic relationship between the two companies, one would assume that GHDC would show a similar Accumulation vs. Share Price divergence pattern...which it does, but not until the first week of March. And the divergence is more pronounced thereafter due to the one high volume day in mid-March when when the price dipped to .04. Regardless, the divergence was already widening at that point.
It will be interesting to see how this divergence in the two stocks plays out and if it does signal a bullish trend reversal over the next few weeks. The divergence has been occurring since December in SFMI so timing the reversal has been and will be difficult and investors will need to look for other signals to indicate the bottom and reversal...all IMHO.
What does this mean? Well, since the Accumulation/Distribution line is a momentum indicator it should reflect the direction that money is flowing. However, the money flow is not corroborated by the share price since the downward share price should correspond with a downward A/D line. This divergence is oftentimes used as a signal for a trend reversal that may be at hand.
Click here for a good explanation of the trend and how it signals a trend reversal.
Since the SFMI/GHDC charts generally mimic each other's movements based on the symbiotic relationship between the two companies, one would assume that GHDC would show a similar Accumulation vs. Share Price divergence pattern...which it does, but not until the first week of March. And the divergence is more pronounced thereafter due to the one high volume day in mid-March when when the price dipped to .04. Regardless, the divergence was already widening at that point.
It will be interesting to see how this divergence in the two stocks plays out and if it does signal a bullish trend reversal over the next few weeks. The divergence has been occurring since December in SFMI so timing the reversal has been and will be difficult and investors will need to look for other signals to indicate the bottom and reversal...all IMHO.
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