AMC Entertainment Holdings, Inc (NYSE:AMC), Coinbase Global, Inc (NASDAQ:COIN) and Roblox Corporation (NYSE:RBLX) are all trading higher in strong downtrends. A downtrend occurs when a stock consistently makes a series of lower lows and lower highs on the chart.
The lower lows indicate the bears are in control, while the intermittent lower highs indicate consolidation periods. Traders can use moving averages to help identify a downtrend, with descending lower timeframe moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term downtrend and descending longer-term moving averages (such as the 200-day simple moving average) indicating a long-term downtrend.
A stock often signals when the lower low has been established by printing a reversal candlestick such as a doji, bullish engulfing or hammer candlestick. Likewise, the lower high could be signaled when a doji, gravestone or dragonfly candlestick is printed. Moreover, the lower lows and lower highs frequently take place at resistance and support levels.
In a downtrend the "trend is your friend" until it’s not and in a downtrend, there are ways for both bullish and bearish traders to participate in the stock:
- Bearish traders who are already holding a position in a stock can feel confident the downtrend will continue unless the stock makes a higher high. Traders looking to take a position in a stock trading in a downtrend can usually find the safest entry on the lower high.
Bullish traders can enter the trade on the lower low and exit on the lower high. These traders can also enter when the downtrend breaks and the stock makes a higher high indicating a reversal into an uptrend may be in the cards.
The AMC Chart: AMC began trading in a downtrend on Feb. 10 and has since made a consistent series of lower highs and lower lows. The most recent lower high was printed on March 9 at $16.27 and the most recent lower low was formed at the $12.90 mark on Monday. To negate the downtrend, big bullish volume will need to come in and drive AMC up above the March 9 high-of-day, or for AMC to print a higher low above the $12.90 level.
- AMC has developed bullish divergence on the daily chart, which indicates a larger bounce to the upside may come.
- Bullish traders would feel more confident if the stock was able to regain the eight-day exponential moving average as support.
- AMC has resistance above at $14.96 and $17.07 and support below at $12.22 and $9.90.
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The Coinbase Chart: Coinbase has been trading in a fairly consistent downtrend since Nov. 9 but the most recent consistent downtrend began on Feb.9. The stock’s most recent lower high was formed at on March 9 and $181.45 and the most recent lower low was created at the $150.12 mark on Tuesday.
- On Tuesday, Coinbase printed a hammer candlestick on the daily chart, which indicates higher prices may come on Wednesday. The stock will need to rise up above the March 9 high-of-day to negate the downtrend.
- Coinbase has a gap above on the chart between $217.49 and $220.84, which is about 90% likely to fill at some point in the future.
- The stock has resistance above at $162.20 and $177.45 and support below at Tuesday’s all-time low near the $150 mark.
The Roblox Chart: Roblox has been trading in a steep downtrend since Nov. 22, losing 72% of its value to trade at an all-time low of $36.04. The most recent lower high was printed on March 9 at $45.75 and the most recent lower low was created at the all-time low on Tuesday.
- Roblox’s relative strength index has been hovering near the 30% level since Feb.16, which indicates a larger bounce will likely come at some point in the future because the stock is technically oversold.
- Like Coinbase, Roblox has a gap above between $59 and $66.34.
- Roblox has resistance above at $43.10 and $48.13 and support below at the all-time low.
See Also: Here's Why Roblox's February Metrices Disappointed Benchmark
