Avoid Stocks in a Downside Price Channel

Stocks on the downside often trade in an downside price channel that is defined by recurring highs and lows. The upper boundary of the price channel is defined by a straight line that connects the highs and the lower boundary connects the recurring lows. The boundaries are parallel.

Prices tend to remain within the lower and upper boundaries. But when a priceprice collapse occurs, prices temporarily move below the lower boundary. But they usually correct and move back above the lower boundary.

In the following chart General Motors (GM) is trading at the upper boundary of a downside price channel that began in late 2003. The price pattern suggests that GM will move down from its current price of $25.59.

Related Articles:

Price Patterns - Resistance Levels Are Barriers to Price Upsides
Price Patterns - Support Levels May Constrain Price Downsides
Upside Price Channel

Posted November 12, 2007.