ATI stock: Trend Reversal Coming?
The most profitable opportunities arise when a stock transitions from a downtrend to an uptrend. Spotting a trend reversal is difficult at best, but if multiple indicators are supporting my premise, then these trades can be very rewarding. Allegheny Technologies Incorporated (NYSE:ATI) stock is in such a position, and there is a possibility that a trend reversal is only moments away.
Averaging down into a losing position is generally frowned upon. Trying to catch a position as it is falling is extremely difficult and traders have coined the term “trying to catch a falling knife”. The saying is true to its words because when shares start trending lower, that trend can last longer than traders usually envision and it can go lower than fundamentals warrant. That said, the trend can last longer than a trader can remain solvent. Catching knives is a dangerous game in which fingers can be lost, and it is not a good investment strategy.
So, as a result, I wait until a trend has turned before I initiate a position. If I come across a possible trend reversal, I get particularly excited. Trend reversal patterns are my most effective tool in determining the point at which a trend has reversed. These tools will not catch the exact bottom ,but they help reassure that I am on the right side of a trade, and that is probably the most important factor in a profitable investment strategy, aside from managing risk.
Chart courtesy of StockCharts.com
The pattern in the Alleghany stock chart is a cup and handle formation. The cup and handle formation is a bullish pattern and the name describes its shape. I like these patterns because they provide a price objective that could be used to formulate a strategy. When this pattern executes, the initial price target is $29.00.
The key feature of this Alleghany stock chart is how resilient the level of resistance is that sits as the horizontal line that defines this pattern. In order for the pattern to execute, the horizontal resistance line must be broken. I would wait for a sustained close on the weekly basis above $18.50 to confirm that indeed a trend reversal has executed in ATI stock.
Once this resistance line is broken, that level becomes support and ATI stock should not back below that level. Trading below support, once it is established, would be a cause for concern that the pattern has failed.
The following Alleghany stock chart provides further evidence that supports a possible break above $18.50.
Chart courtesy of StockCharts.com
In April, ATI stock generated a golden cross. A golden cross is a bullish signal that is produced when a faster 50-day moving average (highlighted in blue) crosses above a slower 200-day moving average (highlighted in red). Traders use this signal to confirm that a bull market is on the horizon. It is always wise to trade in the direction of this momentum indicator.
In July, the same signal was on the verge of reversing as the moving averages met, had a long conversation, and then decided to maintain the bullish bias (excuse my sarcasm). Averted signals are rare and very powerful signals. They are not to be ignored. It is not uncommon for a share price to surge shortly after an averted signal.
The Bottom Line on ATI Stock
ATI stock is sitting at that point in time which could possibly be looked back on. Some traders like to get in prior to a potential break but, due to my conservatism, I would rather wait. I have seen way too many positions whipsaw back below key levels and, as a result, my trading bias is to wait for the price to confirm an actual reversal in Alleghany stock.