Technical Analysis Plain and Simple: Charting the Markets in Your Language, Second Edition

Breakout Warning

Stocks and markets can trade in flat, tight ranges on low volume for weeks, if not months. When volume suddenly spikes up but price does not move, a warning is flashed. A small number of participants have suddenly taken an interest in the stock, and this is shown by the volume increase. However, because information flows are far from perfect, the majority of market players do not follow this lead and therefore do not push up price. Eventually, the “herd” discovers this activity and the reasons behind it, whether they are fact or rumor, and start to take notice. The stock then breaks out of its range.

Figure 32.3 shows Charming Shoppes in a small flat range in mid-1997. On June 27, volume spikes, but the stock was unchanged for ...