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Price:The wild swings down and back up force the weak traders out and bring in the short term speculators, the traders who fade recoveries from deep dips. Those short term speculators (scalpers) have no plans to stay in the stock for a long time, they stay in for a few days, as short as 1 or 2 days. In situations like this, look for a recovery to the 10MA or even the 20MA, which is about as high as the price will go. Volume: Of course volume is high during the deep dip where all the weak traders sell to the speculators. Then volume dries up while the price tries to inch back up. Look for this falling volume with rising price, indicating interest in the price going up is not that great. Stochastics: Stochastics confirms the deep sell-out and quick recovery. ADX, +DI and -DI: -DI is far above +DI, indicating the bears are in full control. -DI and +DI are moving closer together, but there is still a big gap. Meanwhile ADX is going full steam up and then staying flat while the price inches up, indicating a strong downtrend which is barely affected by the price going up. MACD: MACD is coming out of seriously low territory trying to get to the zero line. However, it is still pretty far below zero, while the other indicators are already signaling that the price has a hard time going up. MACD staying below the zero line on a recovery up is not a good sign. Conclusion: The setup above is a good setup for shorting the stock with a high probability of success. Below is the stock several weeks later. Since ORCL is such a healthy company, It makes little sense to short the stock for very long. As soon as Stochastics went back into oversold territory, the stock should have been bought back for a good profit. The stock is already setting itself up for a more long term recovery by attempting to form a double bottom. ADX is flat around 25, meaning no strong trend up or down exists. At this point it is best to stay out of the stock.  Chart by
www.FreeStockCharts.com
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