Super Down for L Brands New Breakdown Low
Thu, Feb 23, 2:51 PM ET, by Corey Rosenbloom
“Stocks which are weak and downtrending tend to get weaker and go lower.”
That’s precisely what’s happening right now with the gap-down collapse in L Brands (LB).
Here’s the weekly chart, a key trading lesson (on reversals and downtrends), and what’s going on now.
L Brands (LB) was a “strong uptrend stock getting stronger” through 2014 and 2015 but the situation changed.
Negative momentum and (more importantly) volume divergences preceded a large scale reversal from a key target.
Shares peaked at the psychologically-important $100 level and now have collapsed more than 50%.
The first clue was the bearish (red/sell) volume surge AND the new momentum low (a “Kick-off”) that took place exactly a year ago in February 2016.
Later the weekly moving averages crossed bearishly at the $87.50 level and thus began the NEW downtrend.
From there, we’ve seen retracements to the 20 and 50 week EMAs (particularly August 2016) but those simply set up bearish ‘flag’ or retracement trades (like those in our “Perfect Pullback” lessons).
Using the weekly chart, we can develop longer-term swing trading strategies as opposed to the shorter-term or day-trading strategies of the Daily (or intraday) charts.
Even if you are a short-term trader, you gain valuable insights from studying the higher timeframe trend and levels.
One of our core trading philosophies at Afraid to Trade is that “Trends, once established, have greater odds of continuity rather than reversal.”
As we can see from the uptrend toward $100 – and now down away from $100 – let the trend set the stage and then build your trades in the direction of the trend.
Oh – big gap surprises (like today) tend to occur IN the direction of the trend.
Thanks for the lesson L Brands!
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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).”
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SDI Glossary: "Stock" Definition
SDI Glossary: "Trend" Definition
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