“Stocks which are weak and downtrending tend to get weaker and go lower.” That’s precisely what’s happening right now with the gap-down collapse in L Brands Inc. (NYSE:LB).

Written by Corey Rosenbloom

Here’s the weekly chart, a key trading lesson (on reversals and downtrends), and what’s going on now.

L Brands (LB) was a “strong uptrend stock getting stronger” through 2014 and 2015 but the situation changed. Negative momentum and (more importantly) volume divergences preceded a large scale reversal from a key target. Shares peaked at the psychologically-important $100 level and now have collapsed more than 50%.

The first clue was the bearish (red/sell) volume surge AND the new momentum low (a “Kick-off”) that took place exactly a year ago in February 2016. Later the weekly moving averages crossed bearishly at the $87.50 level and thus began the NEW downtrend. From there, we’ve seen retracements to the 20 and 50 week EMAs (particularly August 2016) but those simply set up bearish ‘flag’ or retracement trades...

Using the weekly chart, we can develop longer-term swing trading strategies as opposed to the shorter-term or day-trading strategies of the Daily (or intraday) charts. Even if you are a short-term trader, you gain valuable insights from studying the higher timeframe trend and levels.

One of our core trading philosophies at Afraid to Trade is that “Trends, once established, have greater odds of continuity rather than reversal.” As we can see from the uptrend toward $100 – and now down away from $100 – let the trend set the stage and then build your trades in the direction of the trend. Oh – big gap surprises (like today) tend to occur IN the direction of the trend.

Thanks for the lesson L Brands!

[Year-to-date, LB has declined -23.80%, versus a 5.57% rise in the benchmark S&P 500 index during the same period.]