EarningsBeats.com Digest for April 22, 2020
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Traders Should Always Be Aware Of False Breakouts
Candlesticks is a great type of chart to use in order to visualize failed breakout attempts. As a short-term trader, I never like to see a stock I own break out intraday, but fail to hold that breakout at day's end. The reason is quite simple. Individual traders that see a breakout intraday are typically buyers, not sellers. One reason for a failed breakout could be market makers needing to unload a position for an institutional client.
What better way to see a large number of shares then to create an intraday breakout and watch individuals jump in on the buy side, providing the perfect escape for market makers, who sell into the close. As an example, look at Axon Enterprise's (AAXN) failed breakout attempt on Monday, followed by big selling on Tuesday:
Psychologically, it can be hard to sell a stock at the end of the day for $77 when it traded as high as $80 intraday, but failed breakouts occur often and, many times, holding a stock after a failed breakout attempt results in a lot more short-term pain. In this particular case, AAXN has been a solid performer within the defense industry ($DJUSDN), but the group as a whole has struggled vs. the benchmark S&P 500 since late-January. A failed
breakout in a stock that's part of a weak industry group only adds to the bearishness.
Happy trading!
Tom Bowley
Chief Market Strategist
EarningsBeats.com
Better Timing. Better Trades.
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