In this lesson, we will learn how and why BMY manage to bottom out and start a new uptrend.
What we are about to learn is how to spot the bottom of a stock. Sometimes stocks exhibit certain characteristics before they start a new uptrend. If we learn to recognize the clues that the price action is telling us, we may be able to spot the next new uptrend in other stocks.
As you can see from the daily chart of BMY above, the stock suffered a nasty drop. A bearish cross that appeared in the daily chart did not help either. It was a sign that the stock was ready for a sell off.
For about 2 months, the stock trade sideways for awhile. What is interesting is the stock eventually formed a triple bottom. Eventually, the stock broke out of the consolidation or sideways movement.
Notice how BMY also broke back above the 20 MA and 50 MA.
The moving averages also had a bullish cross. A bullish cross often tells us that a stock is about to change trend. This is where the faster MA goes back above the slower MA and this gives us a conducive environment for bullish longs.
Soon, BMY slowly drifted higher. It is now still trading above the rising 20 MA and 50 MA, a picture of strength. It might be forming a daily ascending triangle as it hits resistance. This ascending triangle helps to absorb the supply from resistance and if the stock manages to break above this chart pattern, it might go higher.
I showed you the daily chart of BMY earlier. Now I would like to show you the weekly chart of this stock. The above shows the weekly chart of BMY along with the weekly stochastics 14,3 and the weekly MACD Histogram.
Let's deal with the indicators first.
You can see how the stochastics got oversold and this hinted to a reversal. The MACD Histogram also shortened and this told traders that the stock's bearish momentum is slowing down. The Histogram also showed a buy signal when it cross above 0.
BMY's rapid collapse came as a result of it breaking below a weekly uptrend line. Breaking a trend line can have a significant impact on a stock and that is why we need to be aware of trend lines.
As the stock got oversold in the weekly charts, you can also see how bottoming tails start to appear. Bottoming tails can often hint to a bullish reversal.
The weekly chart shows that the stock is now at a resistance. It may take some time to overcome this but as long as the daily uptrend continues and there is a bullish breakout of the daily ascending triangle, BMY might just be able to climb higher.
For more valuable and insightful technical analysis lessons on individual stocks, go to the Chart Lessons page.
Charts with the Freestockcharts.com label are courtesy of Freestockcharts.com
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