Falling trend breaking upwards

Falling trends indicate that the company experiences negative development and decreasing buy interest among investors. Falling trends indicate that the stocks will continue to fall. Trends often last for longer than investors think they will, and thus many buy a stock too soon.

When a falling trend breaks upwards, it signals a change in the rate of decline. Falling trends often begin with a steep rate of decline, but it slows over time. Yet the company can be in a long term negative development and pessimism can reach ever new investor groups and analysts.

The figure shows the normal state of affairs when a falling trend breaks upwards. The original trend in black, the new one in blue.

The figure shows the phases of a trend reversal. Warning signals are triggered at the break of the trend ceiling, moving upwards from B to C, while a buy signal is only triggered at point E, when the price ends above that of the previous top.

Volume development matters

If a break upward happens on neutral or declining volume, it is often simply a sign of passive investors. This is natural following a negative news stream, and can be used to sell for those who still own the stock.

If the break upward happens on increasing volume, it indicates that buyers actively have to push the price up to get hold of stocks. This is a sign of a potential change of investor psychology, and can be seen as an early buy signal. A confirmation of the buy signal is only given when the stock price breaks above the previous price chart top.

In Investtech’s analyses, a stock which has broken upwards through a falling trend will be assigned a technical trend score which is half of what a stock in a falling trend will be assigned. It counts as half as negative when a falling trend breaks upwards, as when the stock is in a falling trend or the falling trend breaks downwards.