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Technical Analysis Question - Bullish Divergence but Bearish breakout

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trishan9390

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I am a bit confused about the following chart (attached). There is a bullish divergence on the MACD but it has just broken through support and out of the decending triangle. What do you think the prospects are for this share? I want to short it but I am a bit weary of that divergence.
 

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hi trishan personally I wouldn't label that bullish divergence as price hasn't been making lower lows - making lower highs but not lower lows. if price were making lower lows, and MACD had put in a higher low then to me you'd have +ve divergence

something like this

 
Analysis is simply a setup which will either be proven or not.
Divergence is no guarentee if future price action.

This amy also be in complete as it was when divergence was first spotted back sometime ago.

Read in conjunction with other analysis there is no indication that selling has been exhausted --YET and a new bullish sentiment has taken its place.

Shorting would be at testing of the down trend.
buying would be at testing of the lows supported with other analysis.
 
personally I find divergence works well for set ups across many timeframes, but always look for price action to determine the actual entry

on the example below, I'd be put off shorting by the previous buying spike / hammer
 
Actually I dont think its even a probability,its only an anticipation.
We could say that of 1000 divergences there is a probability of X.
In an individual case only an anticipation as nothing has happened to indicate that a positive outcome from a divergence has been triggered.

to read it in isolation would be limiting the "Probability" of success.

So to me its a setup which requires further confirmation.
Id be looking for an exhaustion of sellers then a test.
The chart in question could be on a watchlist.
Currently its really a stock you'd be looking to short as the poster correctly suggests.

Its the typical concern of is it to late to short.
There are indications that suggest caution,but not negation---in my view anyway.

The hammers being tested now.
A volume chart would be helpful.
 


I would take that short but only with a small amount of shares, we are still in a bull market and one rule is to not buck the market trend. (if u follow that rule of course.)

if it came back up and proved me wrong i would wait for a higher low to clearly show the trend has changed that is a back up to the possible divergence, to enter long.

The ball is in your court Tristan, another thing that say's short is that it is treating support as resistance. But why i would stress only a small initial amount at first is the angle of the decent not much push left buy the sellers looks to be creeping, but that could just be a band/ consolidation in the down move before it speeds up again.
more point the P/a broke out of a descending triangle.


my have fun.
 
Just a quick update, the share is down 2.6% at time of posting. It was down as far as 4.28% earlier today.
 
trishan9390 said:
Just a quick update, the share is down 2.6% at time of posting. It was down as far as 4.28% earlier today.
Click to expand...


If this finishes in the upper quartile if the range for the day and the volume is exceptionally high with the wide range this could be a sign of selling capitulation.

Watch now for low volume small range falls which indicate exhaustion of sellers.
This is unlikely to "V" bottom and return bullish.
Watch for a basing.There is arguement that this test of the past Hammer low and the trading in between was/is an accumulation phase yet to be confirmed---higher highs and lows.
 
The share is MIG.

Trishan - did the divergence keep you from shorting it at the downtrend line or the double tops on the way down?
 
Trade_IT,
No worries, people call me Tristan all the time. At work I speak to hundreds of people every week over the phone and people call me either Tristan or Christian, so I am used to it.

Techman and Timmy,
Yes unfortunately I missed a trick with this one. I was kicking myself for not putting in a trigger order last week. I do still think there is more downside in MIG and will look to enter a position once it gets back to value.

Luckily I got into QBE a couple of days ago and took profits at around 30.20 this morning. Should have got in on the way up; it got back to 30.89 by the end of the day!
 
So what do you guys reckon about the attached chart of WOW. You see how the MACD is falling while prices are trading in the box as shown. Would you go short once it breached the bottom of the box? WOW has been in a long term uptrend and this would be going against the trend, but say the timeframe for this is short term.
 

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The MACD measures the difference between 2 moving averages so in periods of consolidation l wouldn't consider it the best tool. Also the MACD declined for WOW on your chart in a previous consolidation zone and then price action went upward.
 
Trishan
Did you read any of that which I wrote above??
 
Tech,
I did read your posts!

WOW fell through the bottom of that box today and at the time of posting is down 2%. I did not get on board.

MIG is trading 2.3% down thats about 14 cents down from the bottom of the decending triangle drawn in my chart. Thats about 4.6% I missed out on
 
So what have you learnt?

What would have been the best way to play this trade knowing what you did THEN---not what you know now?
 
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