U-TURN (BUY) is one of my most favorite signals. As mentioned earlier, the (BUY) version of
U-TURN takes place when a stock is in a down-trend and is likely to enter into an up-trend. It
signals possibilities about the start of an up-trend.
Assume a stock is going down for quite some time. The following are quotes for the latest two
days:
Today 22, 27, 21, 26
Yesterday (Previous Day) 25, 26, 23, 24
Yesterday, the stock opened at 25$, touched a high of 26$ and a new recent low of 23$, and
at the end of the day it closed at 24$. Now today, when market opens, this stock opened at
22$ (a price lower than the Previous Day’s Low price of 23$) and started going down. Now
when it is trading as low as 21$, there are signs of fresh buying which pushes the price
higher. Not a big thing so far because this kind of buying could be seen several times during
any trading session. However, when the stock manages to trade higher than today’s Open
price or 22$, we need to be vigilant for a likely trend reversal. Now if the stock keeps going up
and closes for today at say 26$, which is higher than both Previous Day’s Open price of 25$
and the Previous Day’s Close price of 24$, we have a trend reversal signal! The stock that
has been going down for the last few days and also during the first few hours today,
somehow closed with a happy ending and a strong Close price. This reflects a 180-degree
change in the sentiment. Hence we will call this signal a U-TURN (Buy) signal.
What makes U TURN a powerful Trend Reversal signal? As we know, when a stock is in a
downtrend, sellers out-number or out-power buyers. In such circumstances, it is normal for
the stock to keep making lower Low prices as time passes. This reflects bearish, negative
sentiment or outlook for this stock. Now when trading starts for today, this stock opens at a
price lower than Previous Day’s Low price. This is common for any stock that is going down
and it just indicates the continuation of the negative sentiment. Now if at some point in time
during the session, the stock stages a reversal and starts trading higher. This is likely due to
an emergence of fresh demand at current low price of the stock. Now how can we determine
that the stock is really staging a reversal? To answer this question, the following tests can
help us differentiate a strong reversal from a temporary emergence of buying. First, there has
to be a noticeable increase in volume since this turning point. Second, it has to keep going up
and cross Previous Day’s Open and also the Close price. If both these conditions are fulfilled,
we can be sure that the buying in the stock has been real and powerful. To take advantage of
the currently low stock price, some players seem to have started buying it decisively despite
the strong negative sentiment held by most other players. This buying must be significant
because it not only absorbed what most players had to sell/offer, but buyers kept asking for
more stocks even at higher prices. Today’s demand not only absorbed the selling pressure,
but it even pushed the price higher than the prices of the Previous Day! Isn’t this a
convincing reversal in stock prices?
http://www.profitfromprices.com Profit 8 From Prices
This is a complete U-TURN in the stock price trend and now with a Stop-loss at Today’s Low
price, one can start taking long positions.
Key Points to remember: Current Trend- Down. Weak Open. Strong Bull Day.
Increase in Volume.
Conditions:
1. The stock has to be in a continued downtrend.
2. Today’s Low price (TDL) has to be the LOWEST price for the stock over the last few
days. (If it is the lowest for the last few weeks, we are likely to have a strong major
trend reversal signal- a strong form of U-TURN. However if Previous Day’s Low price
is the lowest for only the last three to ten days, we have a signal that is more likely to
mark the beginning of a Correction or the end of a Reaction – a weak form of UTURN).
3. WEAK OPEN: Today’s Open price (TDO) has to be LOWER than Previous Day’s
Low price (PDL).
TDO < PDL (The more the difference between TDO and PDL, the more powerful the
signal is going to be)
4. Today’s Close price (TDC) has to be HIGHER than Previous Day’s Close price
(PDC).
TDC > PDC
5. Today’s Close price (TDC) has to be HIGHER than Previous Day’s Open price
(PDO).
TDC > PDO
6. Today’s Volume has to be decisively HIGHER than the normal volume over the last
few days or Previous Day’s volume. If you don’t see a jump in the volume today, the
signal loses some of its strength.
