Blackrock (BLK) setup what Trader Vic would term as a 1-2-3 setup or a Dow Theory confirmation of a trend change.
As you can see:
- BLK broke the up-trend after establishing a new 52-week high above $242.
- From there, it consolidated and formed what is referred to as the minor sell-off.
- Prices stared to rise but failed to make another new high. This test of the previous high failed near point number 2.
- A failure to make a new high is usually (not always) a signal that the trend is about to change.
- Finally, we reach point number 3 where prices went below the previous short term minor sell-off (this is trend reversal and the signal to short). If missed, you can short on the first failure to recover the major moving averages (or #3 area).
In addition to the 1-2-3 setup, the stock has also allowed its 10-week moving average to cross below the 30-week moving average with typically signals a change in trend when both lines are starting to point down.
Victor Sperandeo says this about the 1-2-3 setup:
At the point where all three of these events have occurred graphically, there exists the equivalent of a Dow Theory confirmation of a trend change. Either of the first two conditions alone is evidence of a probable change in trend. Two out of three increases the probability of a change in trend. And three out of three defines a change in trend.
Take a look at the picture I scanned from Sperandeo’s book on page 76:
This is essentially the pattern I am watching for in several of the stocks starting to churn (run out of steam) that I posted to my twitter stream. However, have patience and be prepared to sit on the sidelines for a while as this pattern takes time to build and then confirm (nearly four months for BLK).
Recent Tweets on BLK:
- 7:33 PM Apr 6th via web: $BLK – 198.55, clearly falling apart (but gap down has to fill before ultimate slide).
- 10:02 PM May 5th via web: $BLK…Trading @ 174.80 & going down!
This is a game of odds with developed expectancies so take the trades and follow the rules.