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First Thrusts May Be The Key

First Thrusts May Be The Key

In essence, a First Thrust is a POTENTIAL transitional pattern as a Change in Trend occurs from up to down, or from down to up. For this article we will be focused upon the transition from up to down. (After all, eventually all up trends turn into downtrends.) In order to give you a better idea of what these look like from a chart perspective, below are a few examples of past First Thrusts that have occurred that did not lead to new basing structures being built, but which were followed by deeper consolidations.

 

MEE- Massey Energy

BEFORE

JRCC- James River Coal

BEFORE

With all of the above you'll notice the Blue box, those blue boxes are you're first thrusts down. After a first thrust we look for a snapback rally (Everything above the Pink Line), these can range in duration from 1 week, up to 6 months, but all of these snapbacks have that same look and feel to them when all is said and done.

After an issue (or index) stages a snapback rally, that is when investors really need to be watchful. This is when the market shows us whether or not it will find support, or if it will go on to deteriorate even further. Let's take another look at the examples above in AFTER form.

 

As you can see with each of these the blue box was you're first thrust down, everything above the pink line was you're snapback rally. The break of the pink lines to the downside were all you needed to know to get out if you were long and to get short if you were looking to initiate a short sell. Coincidentally those breaks to the downside also corresponded with a break of the 50 day average.

Numerous issues as of late have staged First Thrusts downward, and from here forward it is all about seeing if they are going to be short-lived snapback rallies, or if sound new bases are going to being built.

Over the coming weeks and months we will get our answers. If we start seeing these snapback rallies fail, then we'll know which way to lean and then be ready to trade accordingly.

As you build skill and grow to understand more about technical analysis, you will be able to take action with greater confidence trading based on what you actually see in the charts is critical to removing the guesswork of investing. After all, if you own stocks at a market top, you need to know when to get out; and if you are short stocks at a market bottom, you need to know when to buy and cover your position.