NOTE: Click on charts to enlarge, then click on it again for further enlargement. Use left back arrow to get back to the narrative.
The channel in black in late 2010 is an excellent illustration of the significance of trendlines and how they provide resistance and support. We can connect any two highs or any two lows and call that a trendline, but we never know if it's a significant trendline unless/until it gets tested. The top of this pattern (Trendline #1 -#3) has a total of FIVE trendline validations, two red and three green. See my comments about those on the chart.
After the Channel breakout, MS formed a Rising Wedge, the pattern in blue. Both trendlines are rising and eventually will "meet up with each other" at some point in the future. Rising Wedges are said to be bearish, but they aren't always bearish. How can we tell if it is, or not?
Bearish Case: The high at Blue #3 is 30.87, not far from the 31.25 target that is IN PLAY from the 12-22-10 upside Channel breakout. Yesterday's high was 30.84. If MS should reverse to the downside here and (1) trade below the bottom of the pattern (Trendline #2-#4), (2) trade below the first horizontal red line, at 29.83, and (3) trade below the low at Blue #4, which was 29.50, odds would be good that MS is going to have a move to the downside.
Bullish Case: (1) the 31.25 target from the December breakout still is IN PLAY, (2) the 21 RSI (Relative Strength Indicator) gave back-to-back Buy Signals on February 11 and February 15, and, (3) the top of the pattern, Blue Trendline #1-#3, will be at 31.23 today, February 17, very near the 31.25 target. It will be interesting to see if that target eventually gets MADE, or at least reasonably approximated.
I've made a couple of daytrades in MS and was able to get back in it yesterday at 30.45, after a selloff from the morning high of 30.84. 30.45 was the February 15 high, so it was resistance. Yesterday afternoon, it provided support on the selloff. MS held at 30.44, then rallied into the close.
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