Top Advisors Corner

Curving Angle Of Ascent Pattern Warning: Risk of Heavy Profit Taking On MMM


The chart example above of the 3M Co. (NYSE:MMM) and the Dow 30 index chart look very similar, due to the weighting and formulation of the Dow that heavily favors specific stocks within the index. Both are showing a curving trend after the Angle of Ascent™ reached an extreme vertical 90 degrees. The curve is sometimes harder to see in the early stages like this is currently. No trend will exceed 90 degrees on a stock chart. The result of the extreme Angle of Ascent is a curve inward that warnings early of a higher risk of profit taking that has the potential to trigger High Frequency Trader HFT downside momentum selling.

Support is also a long ways away with the weakest below 147.70 and stronger support at 145.00. The Platform sideways price action was sustained through the summer, before a brief correction that sent the stock down into the 130 range where Dark Pools had been accumulating. Frequent HFT high volume in October created an abnormal velocity action for this stock.

Currently indicators including volume bars show that this run was not created by pro traders or by large lot investors, but rather by smaller lot and odd lot individual investors buying on emotion and recommendations. The buying ran the price up due to the “At Market” orders used, along with high expectations and a lack of Technical Analysis from the buyers. This puts MMM at a point where profit taking by pros occurs since they bought in early. Often this triggers HFTs so the risk is very high that this pattern will fall in price rather than simply move sideways.

While the majority of technical traders are focused on the buy side trading momentum and velocity runs up out of bottoms, it is also wise to consider and monitor stocks for profit taking especially runs with these severe patterns. There may also be opportunities for some selling short as profits are taken, if HFTs or pro traders create a draw down heavy selling pattern.

The markets have enjoyed a big run up but at some point, however a short term correction to pattern out the excess will begin moving stocks, initially with profit taking.

Whenever the Angle of Ascent steepens to this degree especially with very low average volume, the stock is at risk of profit taking that may turn into a slide downward.

Trade Wisely,

Martha Stokes CMT 

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