Should You Stop-Loss When Taiwan Stocks Break Below Quarterly Line? Du Jin-Long Explains 'Granville's Law': This Is Actually a Buying Opportunity

In July, Taiwan's stock market experienced severe volatility. Some investors decided to stop-loss their speculative positions when the overall market broke below the quarterly moving average, only to immediately see a V-shaped recovery, making them question whether they had made a mistake. In response, senior analyst Du Jin-Long appeared on the program 'Stock Money Rolling Money' and explained that according to Granville's 8 Major Rules, when the market breaks below the quarterly line, it is actually a good time to buy.

What Are Granville's 8 Major Rules?

Breakout: When the moving average transitions from declining to flat or rising, and the stock price moves upward from below the moving average to above it, this indicates the downtrend may be ending.

False Breakdown: The stock price briefly falls below the moving average but quickly rebounds back above it, while the moving average continues to trend upward. This suggests the breakdown was temporary and the overall bullish structure remains intact.

Support: The stock price consistently stays above the moving average, pulling back without breaking below it before bouncing upward again. This shows the moving average is acting as support, and the trend has not reversed.

Bottom-Fishing (Rebound): In a downward-trending moving average, if the stock price drops sharply and moves far away from the average, a subsequent rebound toward the average can be seen as a short-term buying signal.

Breakdown: When the moving average shifts from rising to flat or downward, and the stock price falls from above to below the average, this may indicate a shift from bullish to bearish.

False Breakout: The stock price briefly moves above the moving average but quickly falls back below it, while the moving average continues to decline. This indicates the breakout failed.

Resistance: The stock price remains consistently below the moving average, unable to break through even during rebounds, showing the moving average acts as resistance.

Reversal: When the stock price rises rapidly and deviates significantly from the moving average, a subsequent pullback toward the average can be interpreted as a sell signal.

Du Jin-Long explained that because the quarterly line is considered the 'lifeline,' the first time the market breaks below it is actually a buying opportunity. He said, 'After it bounces back up, you can exit.' On July 17th, Du bought many stocks right after the break, and indeed saw a rebound. Even though it later broke the quarterly line again, it wasn't a problem—because after the initial break, the market continued to rise by 28 points daily.

How to Evaluate Your Stock Holding Level?

Du explained that we are currently in a bull market, where the yearly moving average rises about 70–80 points per day. Monthly lines may break temporarily—that's just a short pullback. Breaking the quarterly line is considered the ultimate correction. However, this time, even though the quarterly line broke and turned downward, it was a signal for investors to buy—a correction that should not trigger stop-losses. Instead, those with cash should consider buying more stocks.

Du mentioned that if an investor holds 100% stocks, they should first sell some. Personally, Du held only 50% at the time, so he was happy when the quarterly line broke and proceeded to buy TSMC shares. If someone was fully invested before the break, selling part of the position was reasonable. After cutting 30–50% of holdings, they would have cash ready to buy lower if the market dropped further. And if they were wrong, they could quickly re-enter. So the investor didn’t make a mistake—it simply depends on one’s holding ratio.

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