Anatomy of a Failed Breakout

The biggest risk during this rally has been posed by what are referred to as “failed breakouts” – where a security breaks above resistance, then fails to hold and falls back below the breakout point. What I have seen lately is that failed breakouts get crushed over a very short period of time.

Monsanto (MON) is a perfect example. Monsanto is in the strong Fertilizer group and it broke out of a trading range last week (above the Green Line). Within a day, it fell back below the breakout point and through the obvious Stop Loss point (Red Line), before imploding over the last few days.

This is a very difficult environment right now, so use Stop Losses on all trades if you commit capital…