Eve & Adam
||Eve's rounded bottom takes longer
to form than the sharp Adam spike. Look for volume to decrease as the stock
heals and prepares for a new uptrend. Adam and Eve formations aren't limited
to bottoms. Watch for them at the end of parabolic rallies.
||Eve and Adam formations rarely
appear but are highly profitable when they do. The emotional shift within
the crowd from extreme negative to extreme positive ignites fits of buying,
powering a stock out of its bottom.
The Adam and Eve Reversal demonstrates the
importance of the center peak in the formation of Double Bottoms.
A very sharp and deep first bottom on high volume (Adam) forms this
DB pattern. The stock then bounces high into the center retracement and
develops a longer and more gentle, rolling second bottom (Eve) on relatively
low volatility. Price action then constricts into a tight range and the
stock breaks strongly to the upside.
At times, the top of Eve is bound by a flat
shelf that marks an excellent entry point when broken. And similar
to many of these sub-patterns, shelf resistance is often located right
along the top of the center retracement pivot. This illustrates that the
most important focal point subsequent to any suspected double bottom is
the relationship between this center pivot and current price.
Less common than the A&E is its cousin,
the Eve and Adam pattern. Price first develops support near
its low on relatively minor volume in the signature rounded Eve curve.
The market attempts a rally, which then fails at common retracement levels.
Fear ignites the crowd and price action shifts into a higher volatility
state. A sharp and violent drop ensues, hurling the stock back toward its
lows. A high volume Adam reversal-spike then prints, often with a price
extreme just below Eve's bottom. The subsequent uptrend can skyrocket as
the crowd sentiment shifts sharply back toward the positive.
Since DBs occur in downtrends, risk must be
managed defensively. The greedy eye wants to believe bottoms
and easily fools better judgement. Even spectacular reversals offer little
profit if price can't ascend back out of the hole it found itself in. When
choosing stop and exit points, violation of a prior low is the natural
first choice. Make certain your entry permits you to exit for an acceptable
loss at this location. And don't stick around long. Price will gather downside
momentum quickly at broken lows as it searches for new support.
Successful bottom entry also takes a strong
stomach. Even when all the technicals line up, sentiment will
be highly negative at these turning points. The potential for short-term
profit, though, is outstanding. In addition to other longs ready to speculate
on a good upside move, high short interest will fuel explosive impulses
off these points. Perhaps for this reason alone, serious traders can't
ignore double bottom patterns.