Quick Lessons from Divergences and Reversals in MannKind MNKD
Thu, Jan 29, 5:31 PM ET, by Corey Rosenbloom
A reader asked me to take a look at MannKind (MNKD) and I wanted to highlight a couple of important lessons from the stock and what levels are important at the moment.
Let’s learn a quick lesson about momentum divergences and trend reversals from this stock.
Let’s take this chart one step at a time.
We’re seeing a daily chart from early 2013 to present.
The blue indicator at the bottom is the 3/10 Momentum Oscillator which is used to highlight divergences.
A Positive Divergence takes place (like that of July 2013) when price rallies to a new swing high BUT the momentum oscillator (at the price high) is showing a lower high.
Similarly, a Negative Divergence occurs when price pushes to a new swing low but the oscillator forms a higher low.
Market reversals are correlated with divergences (keep in mind that divergences do not cause reversals).
Closely study each highlighted box that highlights the two positive divergences and two negative momentum divergences at trend reversals in price.
Divergences are warning signs of a possible trend reversal and they can be great spots to take profits and stop buying retracements in the direction of an ongoing (mature) trend.
Very aggressive traders can look for additional signals – such as the break through a trendline or moving average – to play a reversal opportunity.
Study the educational divergence examples on the chart above – these are one of my favorite patterns.
What levels are important now for MNKD?
Price is coming up off a positive divergence into the $4.50/$5.00 per share level.
We’re seeing a rectangle develop between the $5.00 level to $6.75 region (the most recent two swing highs).
For planning, look to trade bullishly above the $6.75 and $7.00 level for a confirmed trend reversal higher.
Otherwise, just like the S&P 500, play “ping pong” within the range between $5.00 (support) and $6.75 (resistance).
Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning.
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade
Corey's book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).
SDI Glossary: "price" Definition
SDI Glossary: "Finance" Definition
SDI Glossary: "Stock" Definition
SDI Glossary: "Trend" Definition
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