Throwback

To demonstrate the concept of the throwback (no, not #tbt, but an actual throwback in the trading world), we’d like to introduce everyone to Muumuu Motors, a car company geared toward middle-aged hippies who’ve grown tired of Subarus and Volkswagens. Muumuu’s stock performs pretty consistently, but it just can’t seem to get above $22 per share. Every time it gets into that $21-$22 resistance area, shareholders get all excited and start selling, thus dropping the share price back below that resistance line.

But today is going to be different. Today, Muumuu launches its new hybrid crossover vehicle, the Birkenstocker, which it knows is going to be a huge seller. Like Jim Morrison, Muumuu’s stock is just about ready to break on through to the other side…of the resistance line. Muumuu’s execs are hoping the share price will hit at least $24 before the throwback kicks in. In this scenario, a “throwback” happens when a stock breaks through its resistance line on an uptrend, but then quickly falls back down into the resistance area. Most of the time, the stock will then shake it off and continue upward (but we should keep in mind that “most of the time” does not equal “always”).

In Muumuu’s case, the hope is that the Birkenstocker will be popular enough to push the share price over the resistance line, allow for a little throwback, and then continue to rise until it settles somewhere near $35 per share. At that point, Muumuu’s executives will know they might the right choice, investing in R&D for the Birkenstocker, and they’ll be ready to commit company funds toward their next big project: an internal combustion engine that runs on essential oils.