Low Volume Retest of High Volume Low

Note:  The historical stock examples given below are for EDUCATIONAL USE ONLY.  They ARE NOT to be used to make buy/sell decisions in today's market.  For more information, please read the HSR Terms of Use.

Description

This price behavior unfolds in four (4) steps:

Step 1:  1st Correction with High Volume Low

After an uptrend, price corrects in one or more legs down. 

The lowest week of the correction features heavy volume with price closing up or down. 

This creates the potential for a high volume low.

Step 2:  1st Rally 

Price rallies out of the 1st correction low for several weeks or more.  

This confirms the high volume low.

Step 3:  2nd Correction with a Retest on Lower Volume

Price comes back down to retest the high volume low on lower volume.

Behavior Note:  Step 3 may include an undercut of Step 1's low week.

Step 4:  2nd Rally

Price reverses and rallies back towards its old high.

Behavior Note:  A Low Volume Retest of a High Volume Low can happen at any time, but it's common to see one during a stock index undercut (ex. S&P 500).

What you need to know

A Low Volume Retest of a High Volume Low is a bottoming price behavior.

Why may this be true?

High volume lows may be tested at some point in the future. 

When they're tested on lower volume, it's a sign that the selling pressure has dried up.

This may be confirmed by how price reacts after the retest. 

If price stalls and can't rally, it can be a negative sign. 

If price quickly rallies back, it's an indication that a low may have been put in for the stock.

Historical Stock Chart Examples 1A-1C:  Urban Outfitters (URBN) 2002-2003

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