DEFINITION of 'Jennifer Lopez - J.Lo'

Jennifer Lopez (J. Lo) is a slang technical analysis term referring to a rounding bottom in a stock's price pattern. This term got its name from Jennifer Lopez's curvy figure; she is often criticized (or praised) for her round bottom.

Traders like the rounding bottom in a stock pattern because it can be an indication of a positive market reversal, meaning expectations are gradually shifting from bearish to bullish.

BREAKING DOWN 'Jennifer Lopez - J.Lo'

The rounded bottom, also known as a saucer bottom, usually means a stock price has reached its lowest point before recovering. The recovery period, much like the downturn, may take months or years to coalesce. Investors chart the time of the highest peak down to the low and calculate it takes at least that much time to recover.

As an example, a stock may top out at $8 per share and then bottom at $6 per share 18 months later before going back up. Analysts may predict that the stock should reach $8 per share about 18 months following the lowest point on the rounded bottom, provided the stock follows that pattern. Any deviation from the upswing in the later 18 months may indicate a new pattern for the stock.

Parts of a Jennifer Lopez Chart

Analysts divide a Jennifer Lopez chart into several main areas. The prior trend shows the stock's movements before reaching its low. The prior trend is necessary for investors to try to gauge a stock's future performance after hitting the rounded bottom. The decline is the first indication of a fall towards the rounding bottom. The decline in the chart may look jagged with several reaction highs and lows over a few months, or the stock may have decline after decline until it reaches its lowest point.

The low point may take weeks to form and it looks like a pointed V shape. If a long-term decline occurs, a selling spike may create the point of the V at the stock's least expensive price. All of this occurs along the left side of the rounded bottom chart.

Recovery

As the stock recovers, an area in the chart, called the advance, indicates a rise in the stock price as investors begin to buy shares again. If the advance rises too sharply, the accuracy of the rounded bottom may not be valid. The rounded bottom breaks out of its low point when the stock price goes above the level of the initial decline.

Volume of stock trading follows the curve, but this part is not as vital as the price of the stock. Volume of stock trading usually reaches a high at the begin of the decline and when the stock reaches its previous high on the rebound. Volume reaches a low point towards the bottom of the Jennifer Lopez curve.

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