Double Top, Failed Momentum, 10- and 20-Day Trends, Broken Support, Aroon Oscillator, and Directional Movement with ADX, with Herbalife Exhibits
TECHNICAL SIGNALS BEFORE A BLOWUP
Negative surprises that take price down dramatically are often preceded by slowing momentum, broken support levels, double tops, and 1-day candlestick sell signals. In this chapter, you look for the early warning signals of trouble ahead, using the Herbalife debacle. It was triggered by questions asked during a company earnings report conference call while the markets were still open. This is a case study of what the market knew and when. The fundamentals had not changed, yet price was cut almost in half by fear of a famous short player's asking questions. Did anyone tip their hand by selling short before the incident and did technical analysis see the signal?
We present the reader with the chart showing the unambiguous signals, buy or sell. Then we analyze what actually happened and why. Sometimes the signals will be wrong, and we want you to learn that technical analysis, just like fundamental analysis, can be wrong. As any trader or hedge fund manager knows, being wrong can be just as profitable as being right, because you quickly reverse your trading decisions, to make up for your losses and probably make some easy profits playing the reverse position.
Portfolio managers, who are long only, are not able to do this, although sometimes they can use options to protect the portfolio. ...