Page 345 - THE MARKET WHISPERER

THE MARKET WHISPERER 34 1

Textron rose strongly in trade’s opening hour. The stock encountered
resistance at $20.91 and consolidated [1] beneath the resistance line for
45 minutes. Without doubt, a lovely breakout formation! Several problems
I found with this formation led me to pass on it. First, the stock was
consolidating beneath the resistance line for too long and too perfectly.

That already makes it suspicious. Second, I noticed that sellers were

renewing supplies all the time, and that was also the reason why the stock
did not break out for 45 minutes. Thirdly, even if the stock would break
out, it was too close to resisting the round number of $21 (see section on
“round numbers” further on). The stock had risen just 9 cents, encountered
sellers waiting for the round number, and dropped. Who were the sellers

that caused it to plummet?
Throughout the consolidation process [1] prior to the breakout, a

large quantity of shares changed hands, and “weak buyers” who had not

yet locked in their profit were entering. When the large sellers continued

selling shares beyond the breakout point, weak buyers felt pressured and

at a certain point dumped their merchandise, causing a drop in price of
15 cents below the breakout level [3]. This is the point where you should
buy, and then sell at [4] when the price returns to the breakout level. If you
familiarize yourself with these rules and this method, it becomes child’s

play!