Don't Ignore This Chart!

Here's What A Warning Sign Looks Like

Tom Bowley

Tom Bowley

Chief Market Strategist, EarningsBeats.com

From a short- to intermediate-term trading perspective, slowing momentum to the upside is a warning sign if you're long.  Slowing momentum can come in different forms, but I consider negative divergences on the MACD and weak volume on price breakouts to be two solid examples.  Based on these two criteria, Black Hills Corp (BKH) is a stock to be concerned about if you own it.  To illustrate, here's the chart:


The higher price with the lower MACD reading is a negative divergence and an indication of slowing momentum.  Note also that I've marked the lighter volume on the most recent price breakouts, another warning sign.  Finally, at the bottom of the chart, I've shown that the slope has moved lower (red arrow) despite further upside price action.  The slope is still positive, but the recent decline is a sign of trend deterioration and that, combined with the other two warning signs, tells me to sell the stock.  These signals don't guarantee a decline, they just suggest that further reward doesn't justify the increasing risk.

Happy trading!

Tom

Tom Bowley
About the author: is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market. Learn More