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General Electric (GE) tested its weekly Starc+ band for four consecutive weeks in February, reaching a high of $21.65. It closed Monday at $18.46, just above the daily Starc- band. This is a decline of 14.7% from the highs.

• The weekly Starc- band at $17.92 could easily be reached this week
• There is converging chart support (lines a and b) in the $17.50 area
• In February, GE closed below the Starc- band at point 1 before rebounding for three days
• GE traded well below the Starc- band in March and then began a several-week rebound that almost took GE back to the Starc+ band
• There is minor support for GE at $19 and then stronger support in the $19.50 area, line c. The daily Starc+ band is now at $19.85

Another well-known financial stock, JPMorgan Chase (JPM), is also on the most oversold list, as it closed Monday at $40.53, just 2.7% above the weekly Starc- band at $39.41.

• JPM has converging chart support at $39.90-$40.24, lines d and e, which may hold JPM above the weekly Starc- band
• JPM is now just barely above the daily Starc- band at $40.38
• In March, JPM came close to the Starc- band (point 3) for several days before rebounding 10%. A similar test in April, point 4, preceded a two-week rebound
• There is initial resistance for JPM at $42 with stronger resistance (line f) and the daily Starc+ band at $43.60

What It Means: It is important to understand the basic interpretation of the Starc bands. If prices are close to the Starc- band, it means that it is a high-risk time to sell and a low-risk time to buy. That does not mean one should just buy when a stock reaches the Starc- band, but it should be part of your evaluation process.

Similarly, when a stock is at the weekly Starc+ band, you should not automatically sell, but it does indicate that risk on the long side is high.

Often times a stock will continue to edge lower after testing the Starc- band, but it will generally not accelerate to the downside. Typically, when a stock closes at or below the Starc- band, it will rebound or at least move sideways for a few periods before the decline resumes.

For option traders employing a covered call strategy, buying the calls back that you have sold against existing stock position when the stock reaches the weekly Starc- band is a valid strategy. You will often get a good bounce where you can re-establish the covered call strategy. Put or call buyers can use the weekly Starc bands to help identify good entry levels.

How to Profit: Though the above four stocks can certainly decline further, the Starc band analysis suggests that they are likely to either stabilize at the weekly Starc- bands or rebound in the next few weeks.

The weekly volume analysis looks the best for Home Depot (HD) and suggests that the current decline will eventually present a buying opportunity.