Robinhood Markets Inc (NASDAQ:HOOD) was falling more than 6% lower on Tuesday in sympathy with both the general markets and the wider cryptocurrency sector, where the S&P 500 was declining about 0.8% and Bitcoin (CRYPTO: BTC) was retracing about 1.3%, respectively.
The drop on Tuesday confirmed Robinhood is now trading in a downtrend. 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 an uptrend 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 is in 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 often take place at resistance and support levels.
In a downtrend, the "trend is your friend" until it’s not and while in one 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 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.
See Also: 'Quite Stupid' To Be Buying Only Stocks Right Now, Says Brokerage Founder
The Robinhood Chart: Robinhood confirmed the new downtrend by falling below the most recent low of $13.23, which was printed on April 1, which negated the uptrend the stock had swung into on Feb. 24 after printing a bullish double bottom pattern at that level.
- The move lower came on lower-than-average volume, which indicates consolidation as opposed to fear. As of late afternoon, only about 10 million Robinhood shares had exchanged hands compared to the 10-day average of 26.96 million.
- The decline also caused the relative strength index (RSI) to cross below its average, which is bearish. The RSI is now measuring in at about 50%, which indicates the stock has lots of room to move in either direction.
- If Robinhood closes the trading session near its low-of-day, it will print a bearish engulfing candlestick, which could indicate lower prices will come on Wednesday.
- If the stock closes the trading day above the $13.30 level it will print a hammer candlestick, which could indicate higher price will come on Wednesday, with the most likely scenario being Robinhood prints another lower high under the March 29 high-of-day at the $16.49 mark.
- Robinhood has resistance above $17.08 and $19.89 and support below $12.77 and $9.94.
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