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5 Weekly Warning Signs Before a Stock Breaks its 10 Week MA

by Erik Grywalski
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Note:  The following article is meant to help you learn from the market and does not serve as investment advice for any specific group or individual.  For more information, please read the HSR Terms of Use.

Stocks go down faster than they go up and tops are not always a process as many may claim.

The eagle-eyed investor knows that it's never too early to start looking for signs of trouble within a stock's uptrend.

Sometimes all you need to notice is one flaw in a stock's behavior before it breaks down through support.

A close below the 10 Week Moving Average (MA) on heavy volume is one of the most common warning signs that precedes major tops in stocks.

But did you know that there are other negative behaviors that you can find before a stock breaks its 10 Week MA?

Here are five (5) weekly warning signs to identify before a stock breaks its 10 Week MA:

1.  First Swing Point High (fSPH)

A swing point high is a price behavior that indicates a potential change in direction.

This change can develop as an overdue consolidation or a major top for a stock that's been moving higher.

However, if a swing point high occurs in an extended stock for the first time since it left its base, watch for a top to form.

A swing point high consists of three (3) price bars:

  • Lower high #1
  • Higher high (Highest high)
  • Lower high #2

But that's not it.

A swing point high also needs confirmation.

To confirm a swing point high, Lower high #2 must close below the lowest price of the highest high.

Please look at this chart to see a swing point high:

Click to enlarge

There's one important point that I need to clarify before you get to my first historical example.

If you'll remember, I said that a "swing point high consists of three (3) price bars"

Well, that's not always true.

Sometimes a swing point high includes more than three price bars.

How can this be?

Please let me explain.

The most important part of a swing point high is the second "lower high" that closes below the lowest price of the highest high.

As I mentioned, this is what confirms the swing point high.

Without a close below the lowest price of the highest high, there's no confirmed swing point high.

Here's the key point...

The close below the lowest price of the highest high does not have to come immediately after the high.

It can come two, three or more weeks later.

The only requirement is that price doesn't make a higher high before it confirms the swing point.

You will see an example of this delayed confirmation when you get to my example that's on the next page.

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