Charting techniques such as trend lines can be useful in analyzing stock charts. A good example of that is visible on the IIF India exchange traded fund now. The fund has seen a retracement from a peak of $30.41 to a low of $21.02 and is currently at $22.79 and in a down trend. A good definition of a down trend is when the stock is making lower lows as has been seen through the recent decline from November 2010. There is however a small change in behavior now. The down trend line is broken for the India Fund chart.
The down trend line is drawn by connecting the peaks of the price chart as it attempts to bounce back after each drop in the down trend. The bounce fails to cross previous highs and the down trend continues to make new lows. Once the selling is stemmed, the stock chart starts moving sideways and breaks the down trend line. This has just recently happened. See the green down trend line and how IIF has crossed over to the right hand side of the line.
The next step to break the down trend is for IIF to make a higher high. The previous recent high was $23.02 and IIF was able to get up to $23.07 before being turned down. In order to break the down trend it will have to decisively cross the previous local high and establish its new strength. Sometimes a stock will go sideways and channel for a while before making new highs and resuming an up trend. Or it may fail and break down and continue its down trend.
In this case I see some strong support at $19.94 as shown by the dotted blue horizontal line. That does not mean that there are any guarantees it will hold. For now, it is a positive sign that IIF has broken the down trend line. Note that the trading signal is still down.
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