A Technical Look at the Washington Mutual Brankruptcy

Could the Washington Mutual bankruptcy, the biggest bank to fail in US history, have been avoided for long term investors?

The answer is yes. Washington Mutual offered nine different sell signals for investors on the way down. This post will show them all.

The following stock chart of Washington Mutual (NYSE:WM) offers a great example of how technical analysis can be used identify potential buy and sell points on a stock chart.

Note: This chart of Washington Mutual is a 15 month daily stock chart:

washington mutual bankruptcy

1. The blue 1 shows where Washington Mutual had its first major price breakdown with a gap down below its key support at $32 a share. Volume was over 300% above its daily average meaning institutions were selling off.

2. The blue 2 shows where resistance was later found at around $22 a share and could not be broken. A sign the bulls could not regain control.

3. The blue 3 shows where the next key support line at $13 a share was broken.

4. The blue 4 shows how key support line #3 turned into resistance. This is very commonly seen and happens both ways, for example once a stock breaks above resistance the resistance line turns into support.

5. The blue 5 shows how Washington Mutual formed a horizontal channel also known as a flat base and eventually broke to the downside. This was yet another key sell signal for the stock.

6. The blue 6 shows how a wedge pattern formed as price volatility increased substantially through July and early August. Eventually in mid August this pattern also broke to the downside.

7. The blue 7 shows how a support line was established at $3 a share and on the 3rd sell off into it failed to hold up. WM stock quickly fell to $1.50 thereafter.

8. The blue 8 shows once again how support line #7 ended up turning into resistance. This was the last push for the bulls which failed to materialize into a rally.

9. The blue 9 shows where Washington Mutual closed under its lats key support line under $2, and today (not shown) the stock opened up trading for pennies after bankruptcy was officially announced.

—> Next Chart, 7 Great Lessons to Learn From Apple in the Last Year


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