Anticipate or Await Confirmation – Abbot Laboratories

• Posted by Greg Harmon
• on October 20th, 2011

Technical Analysts wait for events to occur, confirmation, before taking action. This is often debated as to whether it is the right strategy. If you are 80% certain that something is going to happen why not take a small risk? One stock move yesterday can be used to put some context to this debate. Abbot Laboratories ($ABT) had a outsized breakout from resistance but pulled back all day long. Notice in the daily chart below that it had found resistance at 53 three ties previously and was there for the fourth time prior to gapping higher. Should you have put a small bet on that it would break

higher the 4th time? I noted on Sunday that a break had a target on a Measured Move to 56.50. That would be juicy to capture. Many will say the breakout failed, since it printed a Solid Black Candle, nearly a Marubozu, indicating strong downward action. Or that it was a blow off top , given the huge volume. Does that mean that waiting for confirmation has vindicated that approach? And did it fail? Let’s look a little closer. The 5 minute chart below shows that it opened nearly at the high print on massive volume and began to immediately sell off. Any one looking to enter on the long side would immediately pull their bids on that candle. Hmmm, but that is the same candle from the daily chart, a parallel. Notice though the concave nature of the price action and volume, nearly asymptotic as it approaches the 53 level from above. Upon reaching that level the volume began to increase. Those that were looking for confirmation were now ready to risk capital that it would hold.

Sitting here at 8:50 Thursday morning writing this, the best approach looks to me to be to wait and see if 53 holds as support after the market opens and if it does to buy it. But I am a technical trader. I want confirmation. Others undoubtedly support risking capital on the view that it held yesterday, as it is bid at 53.50 as I write. Which are you? There is not a right answer in terms of style. This is because how you then proceed with risk management will determine your success or failure over time.

If you want to know how I would trade this and for more ideas and deeper analysis, use the Get Premium button above. As always you can see details of individual charts and more on my StockTwits feed and on chartly.

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus