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

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Historical Stock Chart Examples 4A & 4B (Contracting Range):  Federal Express (FDX) 1980

Federal Express doubled shortly after breaking out of its first base since it went public.

However, for the week ending 02/01/80, FDX printed a contracting range week (see chart 4A). 

During its contracting range week, FedEx closed up, but volume soared and its price range barely budged.

After its extended advance, the contracting range week was a warning that sellers were using the rally to unload FDX stock.

Five weeks later, FDX broke its 10 Week MA and fell 40% from its early February peak until it bottomed in May 1980 (see chart 4B).

In contrast to the other historical examples (INSP, SINA, DSX), not all distribution/change in direction behaviors lead to catastrophic declines.

Sometimes a warning sign such as a contracting range week will give you a heads up on an overdue basing period that lies ahead.

For FDX, that was indeed the case as it eventually gathered itself and broke out again during the market's 1980 Uptrend (see chart 4B).

5.  Heavy Volume Off High

Heavy volume coming off a high is a warning signal that occurs when an extended stock makes a new weekly high and then on the following week, makes an equal or a lower high on the heaviest volume of its entire uptrend.

To be clear, volume may be the heaviest in its history or the heaviest since it last left a base.

Historical Stock Chart Examples 5A & 5B (Heavy Volume Off High):  CREE (CREE) 2010

CREE was one of the early stock leaders that powered the 2009 Market Uptrend. 

CREE broke out of its first base in July 2009 and along its peers, VECO and AIXG, led a powerful group move in companies involved in LED (Light Emitting Diode) Technology.

However, in late April 2010, signs of trouble emerged for CREE.

For the week ending April 23, 2010, CREE came off a 10-year high on the heaviest volume in over 5 years (see chart 5A).

That qualified as a Heavy Volume Off High Week and marked the start of CREE's descent back to earth.

By July 2011, CREE had given back just about all of its gains since its 2008 bottom (see chart 5B).

In summary, there are many price behaviors that indicate a stock might be in trouble before it breaks its 10 Week Moving Average.

Some of these include:

1. First Swing Point High (fSPH)
2. Inside Bar
3. Price Churn
4. Contracting Range
5. Heavy Volume Off High

A decline may ensue after one of these behaviors or price may be getting ready to reverse in the near future.

To best notice these behaviors, using a chart and paying attention to detail is necessary because you will have to listen to the market.