Any time a stock makes a new high and then pulls back, that new high is going to serve as technical resistance moving forward. After all, the reason why a stock pulls back in the first place is because it runs out of buyers at the high price in the short-term.
Technical analysts know that the more times a stock tests a resistance or support level without breaking it, the stronger the resistance or support level becomes. Here’s a look at three stocks that may have formed bearish double tops in their charts in recent weeks.
Microsoft has doubled in the past five years, but the stock’s recent double top indicates that the bull run may now be in jeopardy. Microsoft hit a new all-time high of $56.44 in December 2015 before pulling back to the $48 range during February’s sell-off. By late April, the stock was back knocking on the door of new all-time highs, but it was once again rejected at $56.77.
The double top is certainly not good news for Microsoft, but it doesn’t necessarily spell doom for Microsoft bulls. Back in 2014/2015, Microsoft formed a similar double top pattern in the $48 range before its subsequent late-2015 surge to $56.
Visa bulls have a legitimate argument that the stock’s April push to a new all-time high of $81.59 wasn’t actually the second part of a double top but rather a new all-time high in itself. Incredibly, Visa’s stock is up 284.6% in the past five years, and a look at the chart shows why bulls can’t be too excited about that $81.59 high.
First, the $81.59 high was less within 89 cents off the stock’s November high. Chart technicians know that it’s rare that stocks form perfect formations to the very cent, and Visa’s 2016 high was only 1.1% higher than its 2015 high.
Second, from a qualitative perspective, the stock traded in a very tight, neat channel for the majority of its bull run, but the slope of its climb began to decline in 2014. Now Visa appears to be forming a rounded top, which is bad news for bulls.
Boyd is up 77.3% in the past two years, but its bounce off of February lows only managed to eclipse its November highs by 23 cents. Boyd’s double top in the $21 range could be a sign that the easy money has been made and the stock is now headed back down to re-test support in the $15 range.
Fortunately for traders, even if Boyd continues to trade sideways within this trading range, the massive spread between support and resistance is big enough to be very profitable for traders. However, if Boyd makes a significant push below $15, all bets are off.
Disclosure: the author has no position in the stocks mentioned.
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