Here’s an example of a clean setup – JKNY, starting to make a crisp triangle, hopefully marking an end of such a deflating towards the end of 2018.
The mid-2018 parabolic run becomes a bit more pronounced after we draw in the trendline and support levels off the trendline.
Even if we look at the candlesticks during the price deconstruction (I’ve magnified the area), the bearish candles are much more convincing and stronger than the bullish white candles within this same period.
We’re starting to see a bearish tone here. Even if we look within the triangle setup, we can see some more mood set in. I’ve magnified the area, and we can see strong bearish candlesticks which overpower the scrawny, shadowy bullish candlesticks (within this same triangle).
Even though noticeable, we have to point out the failure of the two-year trendline. From 2017 to 2019, we see price lows adhering to the trendline, bouncing off the diagonal support and happily trending higher. That’s not what we see now. For the first time, we see the bears taking the price, convincingly, through the trendline.
Red flag, in my opinion.
The funny thing about technical analysis is that it is so easy to focus on the minutiae details. And for all we know, we may come back to this stock a few months/quarters from now, and see the stock breakout and having a parabolic run up. But the best we can do right now is find comfort with a setup, assess if the risk is worth the reward, and take a look at the big picture.
And the big picture is this, after a long run upwards, we see a stock stalling at the top of the chart, and for the first time failing not only the trendline but creating a triangle where many of the stronger candles happen to be bearish.
Even though this is a clean setup, it’s just not for me. And I’ll be skipping this for now, but I will be watching from the sidelines.