THE EXTENDED V FORMATION

THE EXTENDED V FORMATION

No less potent than the True V, the Extended V (Figure 32) lends itself more readily to accurate forecasting because of one significant difference. This comes after the pivot when the stock has penetrated up through the downtrend line, as described just above. In True V, the upward move begins more or less immediately. In the Extended V, a fairly sizable lateral trading range develops. Eventually, the stock breaks out above the tops of this trading range, thus completing the formation. In detail, the four components of an Extended V are:

·       Downtrend: As in the True V, this may be steep or irregular. In a good many cases though far from all the downtrend is interrupted by a “sideways” or “consolidation” phase a short distance before the final low.

·       Pivot: Again as in the True V, the turn often comes in a single day, but sometimes takes several days. Volume behavior is similar: usually up sharply.

·       Initial Markup: The stock price pushes up through either (1) a downtrend line drawn along the rally peaks of the preceding decline or (2) a line marking the top of the "sideways” or "consolidation” phase that formed just before the pivot. Volume picks up during this penetration.

·       Platform: This is the portion that sets the Ex-tended V apart from the True V, and makes it more identifiable, as well. The Platform may be quite horizontal but usually slants moderately down. As the platform is developing, volume tends to slacken. Then, when the stock begins its final swing toward the breakout, volume tends to pick up. The breakout itself normally is accompanied by heavy volume. 

An Extended V may be regarded as completed, or confirmed when the price breaks through the highs of the Platform on increased volume. If the Platform happens to slant downward, one may watch for the stock to push through the downtrend line drawn along the rally peaks within the Platform. If this penetration occurs on increased volume, the pattern is likely to follow through, and a trader may at this point decide to buy near the bottom of an extended swing.

LEFTHANDED

Sometimes an Extended V develops in which the price and volume follow exactly the pattern described above, except that the Platform is on the left instead of the right. Some people are born with the appendix on the left and the heart pointed right; it doesn’t seem to matter. The Lefthanded V spells a price reversal just the same.