Understanding Stocks

124 UNDERSTANDING STOCKS
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Figure 11-13 Double bottom
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ders formation immediately warned me, in April 2000, to sell all my
stocks and mutual funds.)
In the above example, you can see the Nasdaq topping out in March
2000. It formed a head and shoulders pattern (as well as a double top),
falling back to its neckline before breaking support near 4500 and
eventually falling to 3500, where it temporarily held support. Many
technicians (as well as many fundamental analysts) incorrectly called a
market bottom.
The Nasdaq formed a clear-cut double top pattern at 4200 but
couldn’t break resistance. This gave observant traders a second chance
to get out of the market. After failing to break 4200, it reversed direction,
breaking support levels and making a series of lower lows. By
now, the Nasdaq was doomed. Alert traders bailed out or, even better,
sold short. You can see on the chart how many times the Nasdaq rallied,
only to fall further when the rally failed. These false rallies (called
head fakes) can fool even many professional traders. In retrospect, it’s
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