On Monday I talked to you about AVGO and why I split from my usual strategy of trading in the same direction as the broad market.
Today I wanted to go a little deeper and show you on a chart exactly what I saw and why I decided to trade against the broad market and AVGO’s generally bullish trend.
If you look on the chart below, you’ll see the gaps that I point out.
That’s one thing that showed me that AVGO was going to experience some weakness.
In addition to this, notice how many blue bars there are in a row… That’s a lot of blue bars. In my TrendPoint software, blue bars represent a day with higher daily highs and higher daily lows.
That many blue bars in a row is a sign of “too much” strength, which would indicate the stock will soon experience weakness.
The other thing is the fact that the bars at the top of those gaps are taller than the bars at the bottom of the gaps means that the stock is getting more volatile.
Each candle represents a day and so taller candles mean that the stock has traded in a wider price range that day. That is a big sign of volatility.
With two big gaps like that and the volatility that the stock was experiencing, I knew that we’d start to see some temporary weakness.
Jumps like that are just not sustainable.
Another reason is that when you see a gap — and especially two gaps like in the chart above — that gap has to be “filled in” somewhere down the line.
So to summarize, here are several signs that added up to tell me AVGO would be experiencing some temporary weakness:
- two gaps
- an abnormal amount of “blue bar” days
- several volatile (tall) candles after the gap
- a really sharp angle
When you see that combination of factors, you know weakness is coming.
Again, this is an abnormal setup. I trade AVGO all the time and I love the stock.
But it just happened to show this sign of temporary weakness and I figured I would flip the script and use a non-typical setup.
If you want to hear more about this strategy — including 3 hot energy stocks that are PERFECT to use — click here and watch this video I recorded for you.
Trade well,
Jack Carter
