Don't Ignore This Chart!

Here's What A Warning Sign Looks Like

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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 at EarningsBeats.com, where he provides stock market education, guidance, and trading strategies using a unique combination of technical, fundamental, and historical analysis. Tom provides EarningsBeats.com members with four portfolios (Model, Aggressive, Income, and Value), all designed to beat the benchmark S&P 500, and a revolving Watch List of hundreds of companies reporting strong quarterly earnings (must beat both revenue and EPS estimates) and exhibiting technical strength as well. These companies comprise EarningsBeats' annotated Strong Earnings ChartList (SECL), from which Tom trades exclusively. Tom writes a Daily Market Report (DMR) for members to include an executive summary, market outlook, sector/industry watch, and trading ideas. Learn More
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