Skip to main content

How to identify a stock starting a downtrend?  Today we take a look at Barnes & Noble (BKS)

 

1st Signal

On Nov 24, we can see the uptrend was broken after 5 days of maxing in ST trend (in black).  This indicates that short term traders are leaving or profit taking,  which triggers the wheel broken of middle and long trend.  The next day on Nov 25, we see an all green bar indicating the down trend is not confirmed yet, but the model had given us a first warning of an impending downtrend.

 

2ns Signal and Eventual Downtrend

Then on Nov 27, the short term uptrend broke again and the closing price actions were flat as well.  It is just like the anology of a car running 60 miles per hour: you need to apply brakes a couple of times to stop before you can reverse it.  Although we see the ST bar was red on Nov 27, the overall trend level had not confirmed the down trend yet but it represented a 2nd signal.  On Dec 1, we can see the overall trend level is lower plus we see whole red bars (ST/MT/LT all in red).  This confirms the downtrend according to the model and you could see the next day, Dec 2, has both a lower trend level and a whole red bar again to further confirm the down trend.

 

It is important to remember here that the model may show early signs of a downtrend, but the actual downtrend may take a few days to actually develop and occur.  Was the all red bar on Nov 24th a false indicator, and should the downtrend have definitely occured the next day?  In fact, no because the stock was not ready yet, the model did its job by warning of a possibility of a downtrend coming.  The beauty of the model is it will try to mimic and identify a trend even if the price action is going against the trend.  My point is an up day of a stock doesn't mean it is on the uptrend and vice versa.   Without this model, I can't tell the stock is under uptrend or downtrend unless I lay out the chart and draw the trend lines on paper.  And by just looking at candlesticks, you cannot identify the turn is going to continue or not either.

 

 

Barnes Noble (BKS) trend snapshot.