Reversal days are a great way to stay ahead of potential changes to a recent trend.  A negative reversal occurs when a stock opens up the session heading higher, then reverses and ultimately closes the day lower. Positive reversals are the exact opposite. Positive reversals are often considered more severe if the stock's initial losses drive it to a new low, but it then reverses and closes the day higher on heavier than average volume and ends near the session's utmost highs. Reversals can occur on a daily, weekly or a monthly chart. In general, when a longer time frame is involved, greater implications may be given as to the severity or significance of the reversal. Volume is directly correlated with the severity of the action as well.

Silicon Image Inc. (SIMG +$0.03 or +0.23% to $13.30) positively reversed from earlier losses today, finishing with gains on an increase in volume.  In one week the company is scheduled to report its third quarter financial results. This stock was featured in the October 2006 CANSLIM.net News (read here). A few weeks earlier, on September 12, 2006, this stock blasted through its $12.32 pivot point on three times normal trade and triggered a technical buy signal. After breaking out, this stock spent the next few weeks moving sideways and did not trade above its maximum buy price of $12.83. The monthly report noted that "It may be best to accumulate shares on any light volume pullback toward chart support, as it is also important not to chase this stock above its $12.83 maximum buy price. Always limit losses per the 7-8% sell rule, and never hold a stock if it falls more than that much from your purchase price."

After giving investors several chances to accumulate a position, on October 5, 2006, this stock broke out of its recent consolidation area and quickly became "too extended." During its two week advance volume swelled. However, on Tuesday, October 17th it ran out of steam and experienced its first sizeable decline since October 5, 2006. The bears capitalized on the weakness and sent this stock lower on Wednesday. However, the selling dried up on Thursday, and after trading as low as $12.51 the bulls showed up and repaired earlier losses. It is very encouraging to see the buying demand show up and quell the selling pressure, especially while it remained well above its 50-day moving average (DMA) line. Since this stock broke out, it has yet to trade 7-8% below its pivot point or flash any severe technical sell signals. Thursday's low of $12.51 will likely act as near term support, but stronger support would be found near this stock's 50 DMA. Until support is breached, the bulls remain in control.