Trendline Breaks are OK (sometimes)

After some digging through the charts, when it comes to leapfrogging or just riding trendlines in general, there were two indicators to keep in mind. First, is the break of the trendline. Second, (and in my opinion, the real test of a bullish trend), is the break of the last horizontal support. In this example, around $12.

A simple trendline makes the price action clearer

While it is disheartening when trendlines get broken, it doesn’t necessarily mean the chart is a dud. I’ve drawn BWA’s trendline that connects the lows of around September 2004, March 2005 and January 2006. Then, around June 2006, the price fails the trendline.

Look at the large bearish candles as price was crashing through the trendline

Wow, take a look at all those large dark bearish candles. While it is easy to start getting worried: large bearish candles, bulls losing control, volume all over the place, trendlines cracking; the one level I’m truly concerned about is the horizontal support at $12 – which hasn’t happened yet.

Do you want to know what happens next?

Leave a Comment