Chartered Market Technician (CMT) Practice Exam 2025 – Your All-in-One Guide to Exam Success!

A downtrend breakout signifies a significant shift in market sentiment, where sellers have pushed prices below a key support level or pattern. When prices return to the breakout point within a relatively short period, such as 30 days, this phenomenon is referred to as a pullback.

During this pullback, traders often seek to test the strength of the breakout. If prices retrace to the breakout point, it indicates that there are potentially buyers looking to confirm the breakout. However, it also serves as a critical test for the newly established downtrend. If the price can’t hold above the previous support level (which has now turned into resistance), it can lead to further price declines.

In context with the other choices, a reversal typically suggests a complete change in trend direction, which may not necessarily follow a downtrend breakout. A rally implies a significant upward price movement, usually characterized by strong buying pressure, which does not apply to the situation immediately after a downtrend breakout. Consolidation refers to a phase where prices trade within a range without a clear trend direction, which may occur later but is not specific to the immediate action following a breakout pullback.

Thus, a pullback accurately describes the scenario of prices returning to the breakout level shortly after a