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Rick

Dormant Bottom

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Dormant Bottom

Occurs with low-volume stocks with few shares outstanding during an active rising broader market, where for an extended period of time (weeks or months) there is very little movement in price or volume. Eventually, there is a flurry of activity, and prices advance sharply. The theory is that savvy investors pick up small lots when they come up as opposed to running up the price by bidding on the stock. When this reaches a critical mass, the stock price shoots upward. This pattern is a type of Rounded Bottom.

This daily chart of Greg Manning Auctions had all of the potential signs to be a dormant bottom. Very little activity during an active, rising broader market. But how could one anticipate such a move upward? All of the technical indicators plotted above the chart suggested an upward movement was possible.

In late October, momentum crossed above zero, and relative strength ranking crossed above 89 on the same day. Volume also picked up on that day, and could have signaled the events to follow. All indicators gave signals several weeks before the major price increase, possibly suggesting that some savvy investors were getting into the market when shares became available in the previous months.

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