|During this strong rise for GM, the 20-day exponential moving average (EMA) has been strong support. A small dip to test this support would not be a problem, however a move below the minor trendline at $63 where gap support may hold would start ringing some short term alarm bells. Failure here would likely lead to a test of that congestion zone in the $60 area and would violate the 50-day EMA line that many institutional traders watch.|
|Also should the $63 trendline not hold, there would be a case for a double or triple top-type failure, especially if a weakening of bullish volume occurs.|
|Graphic provided by: stockcharts.com.|
|Short term traders can often spot possible trouble brewing by watching for multiple negative divergences (see previous article, "The Power of Multiple Negative Divergence," April 15, 2002).|
Yes, you can run the risk of bailing too early. However the discomfort of having to reload again is much easier to take than getting caught in a vicious downdraft.
|This chart is also a good example of previous gaps becoming crucial areas of support. Short term traders may target these areas for exit/entry points for long/short positioning.|
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