FAZ: It Hunker Down at $30

My last comment on the FAZ, to Life Observer, after I closed out my short trade:

"It's at 30 resistance, where I shorted it this morning (at least I caught something in it the past two days...LOL). Next serious resistance is the 34.50-34.80 bottom of The Rectangle.

I'd like to see it hunker down here in the 30 area, and below, and build a nice base before attacking next resistance. A retest of this morning's low isn't out of the question either."

Here's what the FAZ did after that:



It hunkered down at the $30 area and built a nice base, this Nested Ascending Triangle. So often over the years, I am asked, "Now what, Melf?" "What's your next 'call' on this?" My only CALL on these charts is to do YOUR homework, and follow the chart as best you can, which is what I try to do. I don't know the future any more than the rest of you.

Up to this point in the chart, from my March 10 pre-market post on the imminent H&S Top breakdown at the open, we have had a total of at least THIRTEEN patterns and targets that got MADE, and I never CALLED a single one of them because I don't have divine knowledge of the future. LOL.

I only know whether or not I've got a pattern breakout (and, sometimes those are false breakouts/breakdowns) and what target that breakout or breakdown suggests is IN PLAY. Same applies to support and resistance. In my short trade in the FAZ that I posted last week, I shorted resistance and covered at support. I didn't KNOW whether that would be successful or not, but I had a game plan, and executed it.

They aren't "always" winners, nor do thirteen pattern targets in a row get MADE, but in this case, they did.

If we are FOLLOWING along (I was busy with my IBM trade after I covered my FAZ short), we can see that, indeed, the FAZ hunkered down at $30 and formed this Ascending Triangle with a nested Bull Flag (in yellow,) broke out from Patterns #14 and #15 since the smackdown from the March 10 break of the H&S Top, and put three more targets IN PLAY:

1. 31.60 - Bull Flag (in yellow)

2. 34.50 - 34.80 - Resistance at the bottom of The Rectangle that broke down and put 23.98-24.70 IN PLAY, where the FAZ bottomed last week. The low was 23.88, ten cents below that.

3. 36.36 - Ascending Triangle

We know that "nested patterns" tend to pack some punch, increasing the likelihood that the targets will get MADE. No guarantees. Targets only are "what we're aiming for," and they need to be monitored along the way.

In measuring the Ascending Triangle, I always use the most coservative of the highs to establish the target so that the expectation isn't overly ambitious. It's perfectly fine to use the highest high, and many technicians do. The highs were 30.12 ... 30.30 ... 30.22, so I'm using the 30.12.

30.12 - the 23.88 low = 6.24 points of upside + 30.12 = Target: 36.36 IN PLAY



The nice Ascending Triangle base, and subsequent breakout, launched Friday's rally in which the 31.60 Bull Flag target got MADE, and the 34.50-34.80 targets both got MADE. The Ascending Triangle target of 36.36 still is IN PLAY.

When a pattern target goes IN PLAY we, as technical analysts, have to look at the chart and try to make a determination about how realistic the target is. In the case of this 36.36 Ascending Triangle target that is IN PLAY, is there any resistance that would suggest that it might not get MADE?



There sure is! This entire Rectangle price area represents nearby resistance. That doesn't mean that the FAZ can't get through it, or won't get through it. It simply means that we have to decide what we want to do about it.

For example, anyone who bought the Ascending Triangle breakout in the $30 range has a lot of good choices, one of which is to "take profits when targets get MADE" at this 34.50-34.80 Rectangle resistance area. We know that targets against the trend are less likely to get MADE. The trend has been down, and we're AT RESISTANCE, so if I had gotten long the Ascending Triangle breakout, I would take at least some off the table.



Since the FAZ stuck the close on Friday slightly above the 34.50-34.80 bottom of the Rectangle resistance, I view that as a first down into FAZ Bear territory (for you football fans ... LOL), and view the short-term picture as Neutral as long as the FAZ trades above 34.50 - 34.80. Getting above 44.90 - 45.01, which is the top of The Rectangle, would be a SCORE for the FAZ Bulls.

As always, I have no prediction about what anything is going to do. I might or might not be following this particular fund next week, but if I were, I would do just what I've done along the way. Try to FOLLOW the patterns, as best I can, like this "possible" Bearish Wolfe Wave that might be developing. If that plays out, there will be a "Fakeout/Breakout" at Wave #5, then a move down toward the target line, at #6, wherever that is as the chart evolves. Just an example of watching to see if something unfolds, like the Nested Ascending Triangle did at $30, and like the other thirteen patterns did from the March 10 break of the H&S Top.

I hope that my nearly two-week analysis on the FAZ and the SKF has helped with pattern identification, establishing targets, support and resistance, etc. I have over-focused on the FAZ because a number of people are in the fund, but my purpose here isn't to do a play by play of a particular stock or fund, or to do other peoples' homework for them and hand out targets, so I would appreciate if people not ask me to do that with questions like, "What's your NEXT target, Melf?" Frankly, that begins to feel like, "What have you done for me LATELY?" I'm doing this for free, and although I try to be as generous as possible and will continue to try to do that over time, I ain't workin' this hard for free, and I doubt that anyone reading this would either ;)

My purpose has been to help to teach YOU how to do your own homework on these charts. Good luck to all of you!