|A valid trendline is composed of at least three instances where the lows or closes on a stock can be joined by a line. Looking at Figure 1, a monthly chart for Safeguard Scientific (SFE), you can see that a valid trendline has been in existence since 1990. After rising to nearly $100 on a split-adjusted basis in the dotcom boom, SFE has fallen back to below $2.|
|FIGURE 1: SFE, MONTHLY. A valid trendline has been in existence since 1990.|
|Graphic provided by: Wealth-Lab.|
|In 2002 and 2005, the stock touched and subsequently bounced off the old trendline, again supporting its validity. Currently, SFE is again poised to touch its old trendline, with the price at $1.20.|
|Be aware that this is a speculative play, and even if the stock bounces, it won't likely bounce more than a few dimes. Regardless, this trendline bears watching because if SFE breaks through, it would likely be in a good position to short.|
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