Evaluating An Improving Stock

One of the most difficult things to do in the stock market is evaluating a downtrending stock for a potential bottom.

We can see certain patterns like double bottoms or reverse head & shoulders patterns. Perhaps there's a positive divergence. Maybe we'll even see an exhaustion gap. But nothing works better than simply seeing prices begin to trend higher, while key technical support levels hold. Let's look at Mohawk Inds (MHK), a furnishings company:

Enter Mohawk Inds, Inc. (MHK):

There are clearly new signs emerging that could be pointing to a bottom. I love the positive divergence. That was followed up by two very bullish candles on heavy volume to break above both the 20 day EMA and 50 day SMA. More recently, we've seen some selling, but it's been on lighter volume. When price reached gap support just a couple days ago, we saw buying and a bounce. All of this is good, but there's no real confirmation yet. And I'd hesitate a bit, looking at MHK's relative strength (or relative weakness is more like it). When/If you take a chance with a stock like MHK, you need to enter when you can keep your stop tight - like that green gap support line. One of my favorite stock market quotes is.....

"It's okay to be wrong, just don't be wrong for long."

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.