Failure That Cuts Losses
When a pattern is broken and then prices turn around immediately, we get a failure of another kind. This one tells us right away that the initial trade was incorrect and that it should be closed, if not reversed. In November 2004, utility stock Scana Corp broke below a two-month support level on a nice pick-up in volume (see Figure 23.3). However, the very next day, it not only closed back above that broken support but also above the previous day’s high to signal that the breakdown was false. It was time for short sellers to cut losses immediately.
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