Tuesday, March 22, 2011
BIDU: Channel Breakout
This chart is a great example of the importance of trendline validations. After we connect the first two data points for our trendlines (both upper and lower trendlines), we want to see if Ms. Market will validate that they are significant, either by finding resistance or support when they get tested. The circled numbers are trendline validations both of resistance (#3 at the top of the channel) and of support (#3, #4 and #5 at the bottom of the channel).
When a validated trendline gets broken, that usually has some significance. Not always. Sometimes the breakout fails, and the stock goes back into the channel. There's no "always" in the stock market.
In this particular case, when BIDU broke out of the channel to the upside just after yesterday's open (white arrow), it got a nice little pop and now looks to be trying to form another pattern (the one in yellow).
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