(Click On Charts To Enlarge)
Chart #1: POT had a very nice rally of nearly 75% over the past two weeks. In Thursday's session though, POT put in a Bearish Engulfing pattern, then after the close, the company lowered its 2008 earnings estimate. We won't accuse anyone of selling Thursday on inside information, but it sure "looks like" sumbuddy knew sumpthin' and got outta there on that Bearish Engulfing candle ;)
Chart #2: Rather than try to PREDICT what a stock (or sector, or market) is going to do, I try to FOLLOW the action, then have a plan for what I'm going to do about it, if anything.
On the news, POT was called gap down, and I knew that I didn't want to join in the "shorting into the hole." That's the obvious play, and the trade is already gone. But, looking at the 10-Minute chart, we can see that horizontal resistance is at 73.08 and 73.38, and we also can see that the bottom of the broken Falling Wedge (pattern in yellow) comes in right there, in the low 73's, so on any rally attempt to fill the opening gap, that's DOUBLE resistance, and any rally to that level "should" fail.
Chart #3: POT put in an early morning low about a dime higher than Monday's gap higher (the gap to the far left in the intraday chart), then turned and rallied hard toward the gap, and toward DOUBLE resistance. When it did that, I placed an order to short 73.30, just below Thursday afternoon's "last low" of 73.38. I got filled, and POT went just a little bit higher, to 73.53 I think it was, and that was all it had in it on the upside. Within about 20 minutes, I had a quick $1,500 profit and banked it. That's a nice reward for being prepared, by doing a little bit of homework on resistance in the intraday chart.
4 comments:
awesome trade!
If this thing continues lower to the lower trendline, looks like we'd have a tradable Wolf Wave at that point, no?
Happy Holidays to you and yours, Melf!
Thanks very much, Greg. I've really enjoyed this trading environment for the past month. Lots of good patterns on the intraday charts, like the "nested" Right Shoulder of the intraday H&S Top in the SPX chart that I posted here on Friday. Those tend to work out fairly well, when you've got DOUBLE resistance, like this POT trade, or multiple patterns, like the SPX top.
Not sure to what you are referring regarding the Wolfe Wave. Let me know on that.
Happy Holidays to you and your, as well, Greg. I've enjoyed our discussions, and you are a wonderful asset at xTrends.
thank you, Melf! I feel the same way about you on xtrends. I nearly always learn something from your posts and from your blog. Your recent "sea change" post was very timely and thought-provoking. It will be interesting to see what happens to the markets when the whales return in January.
The wolf wave I'm referring to is on the daily. For it to complete, POT will need to move down into the low 40's. Probably not likely, but if Atilla's crash scenario plays out, then it could happen. If it does, there'd be quite an opportunity for a swing trade. You'd have a price in the low 40's and the Wolf Wave target line pointing to nearly 100!
Greg,
You get another star on your forehead! LOL. I couldn't for the life of me see a Wolfe Wave forming in the intraday chart of POT. Later last evening, I realized that you meant the DAILY chart!
Yes, that could have some upside potential if it plays out as you've outlined. We'll watch for that if we get another smackdown in the market in January.
What is interesting about the "sea change" in the market that we discussed, though, is that a number of stocks broke out to the upside in December. On a selloff in January, they will be selling off to various levels of support rather than going into freefall on the downside below ALL support, like they did in the autumn.
Gigamedia (GIGM) is representative of the "sea change" to which I referred, so I'll do a post on that one as an example, and also because it had a Bullish Wolfe Wave breakout.
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