The Spyder Trust (SPY) moved sideways for the following three weeks before it dropped sharply. The OBV stayed above its WMA until the week ending May 18, and in this instance, was not helpful in confirming the doji. The SPY made a low of $127.14 in early June and by the middle of the month, the OBV was back above its WMA.
One of the dominant stock stories since last September has been the plunge in the stock of Apple, Inc. (AAPL). The weekly OBV of AAPL broke through its resistance (line a) in February 2012 as the stock accelerated to the upside.
As AAPL pushed above the $700 level in September, it formed a doji (point 1) with a high at $705.07, which was very close to the quarterly R2 level at $705.21. The close the following week at $667.10 was well below the doji low of $693.62.
Two weeks after the LCD, the OBV dropped below its WMA and the next week it also broke its uptrend, line b. The OBV did not form any divergences at the highs and oftentimes it will not. The daily OBV also did not form any divergences but a daily doji was formed on September 20 and AAPL closed below the doji low two days later.
Next, let’s look at a weekly chart of the Vanguard MSCI Emerging Market ETF (VWO), which formed a doji the week ending August 6, 2012, with a high of $43.04 and a low of $42.20 (point 1). The next week, VWO closed at $41.31, triggering the LCD. A stop 0.5% above the high would have been at $43.26. Over the next nine days, VWO hit a low of $40.06 before spurting to the upside with a high of $45, which would have hit the stop.
I included this example to reinforce the reality that nothing works all of the time but also to illustrate that all trades need to be managed when they move in your favor. The fact that the weekly OBV had just moved above its WMA as the doji was forming might have kept you out of the trade.
At the end of April 2011, VWO formed another doji, point 1, and the following week VWO closed at $48.74, which was well below the doji low of $49.95. The formation of the doji was accompanied by the formation of a negative divergence in the OBV, line a, as it made significantly lower highs.
The OBV marginally broke its support, line b, several weeks before the doji was formed. After the LCD was triggered, the OBV dropped below support and its previous low (point 5).
The stop on a short would have been above the high from the week after the doji at $50.92. Seven weeks after the LCD, VWO stabilized in the $46 area and rallied as high as $49.65 before forming a second doji at point 4.
VWO plunged the next week and closed at $43.65, which was well below the second doji low of $47.61. By early October, VWO had made a low of $34.21
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