VPHM Breakdown on 3/17
Support levels are often judged by looking for three or more bottom that are
separated by at least five days. In the chart of VPHM, you can see that there were 4 separate
tests of 16 before the recent breakdown. Beyond this, the 16 level took on additional
importance because it coincided recently with the rising back 200-day ma.
Traders will often place stop sell orders (mental or real) just below such support levels.
These sell orders become market orders as each is triggered.
When you realize how far the stock had advanced last year, you begin to see that
it becomes even more vulnerable if the 16 support were to fail, which the chart
shows it did with a vengence. A lot of investors had profits they were ready to take
if that 16 level failed. So, when negative news came out about the company
that day, it was particularly vulnerable. Finaally, add to this the consideration
that this was a relatively new, unseasoned and thinly traded stock, and
you see why it fell so far and so fast, in a single day.
The same ideas will also work if a stock's support violation were to coincide
with the breaking of the key 50-day ma. And they will work in reverse,
though usually not so dynamically. Fear is a bigger, more immediate force than greed.
