How Many Bad Signals Can One Stock Have: Pre-Paid Legal, PPD

• Posted by Greg Harmon
• on October 25th, 2010

This stock made #9 on my Top Ten Trade Ideas October 4, 2010. It had just made a big down move on a Thursday but then printed a hammer on Friday holding support. I suggested that if it continued to hold support at 62 it could be a good long play. What a dog since that call! It did not hold (so I never entered) and has been lining up horrible technical indicators. I am not writing about it tonight to review that trade idea but rather to use the stock to point out how quickly the technicals can line up against a stock. Look at the chart today.

How Many Bad Signals Can One Stock Have

1.  Shooting Star

Let’s start with today’s shooting star candlestick, a bearish indicator.  The gap up, followed by trading higher still,  only to fall back and close near the open is a sign that sellers overtook buyers later in the day.

2.  Massive Volume – Blow off Top?

With the gap up today volume came in at nearly 4 times the Average Daily Volume (90 days).  This smells like an Island Reversal or Blow Off Top.  Tomorrow can confirm.

3. Series of Large Red Candles

Three large red candles, all on large volume have occurred within the last 3 weeks.  These candles dwarf in size any other candle on this chart.  A clear sign that there are some skittish holders.  Also, until the gap up today, the responses following these candles could not retake a single one.

4. Bear Flag

Finally note the bear flag that was growing until the gap up today.

The stock moved today on a rumor of a takeover bid by an unnamed private equity firm.  The Company also stated that it is exploring options, including but not limited to a sale, to increase value.  Today’s move erased all of the negative MACD indicator and makes the RSI look like a great reversal.  Good luck to you if that is how you are playing it.  I am cutting out the noise and looking to buy puts at the open.

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