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http://education.investors.com/investors-corner/418949-how-to-tell-if-a-pullback-is-a-buy-opportunity.htm
After leading stocks break out, they usually pull back once the initial surge of buying fades. Often, these are good opportunities to buy if you've missed the breakout -- as long as you buy at a proper point. Judging the difference between a good second chance and the start of a big descent requires a study of the stock's action around its 50-day or 10-week moving average. Countless examples demonstrate that a stock with strong fundamentals and chart action finds renewed strength the first or second time it recedes to one of those support levels. Look for the stock to touch or come near the line. It's especially bullish if volume on the pullback is light, or at least lower than during the stock's breakout. If the stock starts to bounce back up from the line, it shows that institutional investors are buying shares. Volume should be strong as the stock shakes sellers off its back. It's a sign of weakness, however, if the stock falls below its 50-day or 10-week line on heavy volume. Sometimes, stocks find support slightly below their 10-week lines. When they're unable to rally back above that level, it's a sign of a possible correction ahead. Any time a stock drops 7% or 8% below its buy point, sell it immediately. About four out of 10 stocks will slide back to their buy points, testing their breakout. Leaders that sink 8% below their buy points often are heading for serious trouble. When they drop that much, chances are the breakout has failed. Alcon is a stock that exemplified a good pullback. The maker of medicine, surgical equipment and contact lens supplies broke out of a base during the week ended Feb. 11, 2005 (1). The first pullback occurred six weeks later, when Alcon sank below its 10-week line (2). Volume was heavy, although shares reversed higher -- a positive sign. The stock resumed its climb in the week ended April 22 (3). This would have been the proper time to buy. Alcon peaked on Nov. 28. By late December, the stock had dipped to its 10-week five times (4). The stock met heavy selling after its last pullback (5) and was unable to rebound.
After leading stocks break out, they usually pull back once the initial surge of buying fades. Often, these are good opportunities to buy if you've missed the breakout -- as long as you buy at a proper point. Judging the difference between a good second chance and the start of a big descent requires a study of the stock's action around its 50-day or 10-week moving average. Countless examples demonstrate that a stock with strong fundamentals and chart action finds renewed strength the first or second time it recedes to one of those support levels. Look for the stock to touch or come near the line. It's especially bullish if volume on the pullback is light, or at least lower than during the stock's breakout. If the stock starts to bounce back up from the line, it shows that institutional investors are buying shares. Volume should be strong as the stock shakes sellers off its back. It's a sign of weakness, however, if the stock falls below its 50-day or 10-week line on heavy volume. Sometimes, stocks find support slightly below their 10-week lines. When they're unable to rally back above that level, it's a sign of a possible correction ahead. Any time a stock drops 7% or 8% below its buy point, sell it immediately. About four out of 10 stocks will slide back to their buy points, testing their breakout. Leaders that sink 8% below their buy points often are heading for serious trouble. When they drop that much, chances are the breakout has failed. Alcon is a stock that exemplified a good pullback. The maker of medicine, surgical equipment and contact lens supplies broke out of a base during the week ended Feb. 11, 2005 (1). The first pullback occurred six weeks later, when Alcon sank below its 10-week line (2). Volume was heavy, although shares reversed higher -- a positive sign. The stock resumed its climb in the week ended April 22 (3). This would have been the proper time to buy. Alcon peaked on Nov. 28. By late December, the stock had dipped to its 10-week five times (4). The stock met heavy selling after its last pullback (5) and was unable to rebound.