Wednesday, August 15, 2012

The "Dreaded Triple Top".

Below is a link to an article that comes from "The Street".  A well known financial site. It has been my experience that "triple tops", which occur when prices reach a previous high for the third time, are bullish. While there are often pullbacks from these highs, quite often after the pullback prices go up past the triple highs and a new run higher ensues.

Think of it this way.  The first time prices reach a high it is just that prices have gone up until the market as a group decides they are too high, there is a lack of buying interest and an increase in selling that drives the price down. Profit taking, to use the common parlance.

But in any rally there are those who still believe in the rally and will buy more as the price gets "cheaper".  So the selling declines, bottom pickers step up to the plate. Short sellers may cover. And for whatever reason the price goes back up. In this case the price goes up to where it was before.

Now, on this second move to the old highs folks are smarter. They saw what happened last time prices got here so many will sell. Those that had bought near the first high will tend to want to get out even and some of them will sell. The short seller sharpies will look for a repeat of their last victory so will sell. But, again, for WHATEVER reason, prices find a bottom and go back up.

If they make it to the previous highs AGAIN you have to ask yourself this: "Why are they up here a third time?" If this market was truly weak, and the long term players were selling and getting out, why is this market up here for the THIRD time?

O'kay, maybe it is just up here for the same reason as the second time. And it will probably go down again for the same reasons. But the thing to watch for is if it comes up again and goes higher it means that it is NOT a "triple top". Just because price hits resistance three times does not mean it is a top. It is only a top when it goes down and keeps going down..... Only well after the fact can you call it a top!
But to me, when a market gets back to previous highs the third time I think: "If this market is so weak, what the hell is it doing up here AGAIN?!!

The link:

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