It's easy enough to see where the five-month ImClone rally ended. After all, that's why they call it a broken trend line. Now this routine event isn't the end of the world. Broken rallies often lead to sideways markets, not death spirals. But sideways isn't nearly as good as up, so we'll mark the breakdown as Warning No. 1.

 

Warning No. 2 comes just two bars later, when the stock breaks the 50-day moving average on strong volume. Definitely not good news if you own the stock. In fact, it gives investors a very good reason to sell. The stock then waves another red flag. Price bounces back to the 50-day moving average from below but fails to break it for four sessions. Hear that ominous sound? Warning No. 3 just rang a very loud bell.

 

OK, this is getting serious. The selloff expands out of the failed test and closes at the low -- right at the 100% retracement of the last rally. This level should provide strong support and stop the selloff. So how come day-traders didn't step in and bounce the stock before the close? Members of the jury, I give you Warning No. 4.

 

Armageddon strikes the next day. Price rips a 19% gap on high volume and breaks the 200-day moving average. Enter Warnings No. 5 and No. 6. I wish that was the end of the story, but it isn't. While the gap does great technical damage on the daily chart, watch what happens when we zoom out and look at the long-term chart.