But watch out for very weak breakouts. Stocks may use this side of the trendline to initiate a new downward impulse, with price gently sliding along the line until the prior low is retested. Downtrends do not easily give way to new up trends. While a break of the 1-2 trendline marks the completion of the Five Wave Decline, subsequent price movement may not generate much momentum. Long entries initiated at the trend break can be very successful but a defensive posture is warranted.
Bottoms can take time to form.
This sketches the classic double top breakdown pattern. Short sales can be initiated at the first violation of the prior up trend. But the danger of a short squeeze remains high during this early stage. Subsequent breakdowns are not as deadly to short positions as a new bear mentality weakens rally attempts. All rights reserved.