My problem with companies like Enron and
Halliburton is they don't have four
letters. After all, the Nasdaq is where
I spend most of my time. It's also where
other
traders hang out, because
of the direct-access systems. So how
about a little more gossip about OTC
bloopers, screwups and nose dives?
Momentum favorite ImClone Systems is a
good place to start. It's fallen over
50% in the last three weeks and may not
stop until it hits ground. In fact,
every time knife-catchers step in to
call a bottom, they wake up the next
morning with long blades planted firmly
in their backs. |
It's easy
enough to see where the five-month ImClone rally
ended. After all, that's why they call it a
broken trend line. Now this routine event isn't
the end of the world. Broken rallies often lead
to sideways markets, not death spirals. But
sideways isn't nearly as good as up, so we'll
mark the breakdown as Warning No. 1.
Warning No. 2
comes just two bars later, when the stock breaks
the 50-day
moving
average on strong volume.
Definitely not good news if you own the stock.
In fact, it gives investors a very good reason
to sell. The
stock then waves another red flag.
Price bounces back to the 50-day moving average
from below but fails to break it for four
sessions. Hear that ominous sound? Warning No. 3
just rang a very loud bell.
OK, this is
getting serious. The selloff expands out of the
failed test and closes at the low -- right at
the 100% retracement of the last rally. This
level should provide strong support and stop the
selloff. So how come
day-traders didn't step in and
bounce the stock before the close? Members of
the jury, I give you Warning No. 4.
Armageddon
strikes the next day. Price rips a 19% gap on
high volume and breaks the 200-day moving
average. Enter Warnings No. 5 and No. 6. I wish
that was the end of the story, but it isn't.
While the gap does great technical damage on the
daily chart, watch what happens when we zoom out
and look at the long-term chart.
Warning No. 7
nails the coffin shut. The gap triggers the
failure of a multiyear channel breakout. This
opens the door for a trip all the way back to
the lower $20s.
