From Friday morning:
"My plan was to re-enter POT long on a retest of the top of the Ascending Triangle (105.44-105.49) since a target of 110.04 still is IN PLAY from that breakout (the Ascending Triangle), but it didn't pull back that far. The afternoon low was 106.30."
We got the retest of the 105.44-105.49 top of the Ascending Triangle (pattern in red) and it was successful, but unfortunately, it came late in Friday's session. The Ascending Triangle target of 110.04 got MADE early Friday morning.
Notice the white trendline, connecting lows of 106.33 and 106.50. Remember that we connect ANY two highs, or ANY two looks and call that a trendline, but we don't know if it's valid unless/until Ms. Market tests it and uses it as support or resistance.
That trendline broke to the downside, and POT made a "lower low," below 106.33, which suggested the retest of the 105.44-105.49 top of the Ascending Triangle. POT sold off to 105.62, then rallied for a retest of that white trendline. The rally failed AT the trendline, at 106.69 (the white arrow). At that point, Ms. Market said, "Yep, that's resistance!" That suggested that the retest of the 105.44-105.49 top of the Ascending Triangle wasn't finished.
In the final hour, POT sold off from the white trendline resistance, but put in a low at 105.20, just below the 105.44 - 105.49 top of the Ascending Triangle. Turning for home, POT rallied above the white trendline resistance, and...
...broke out of a Bullish Falling Wedge (pattern in white). Retests aren't always exact. The 105.20 low was a slight penetration of the 105.44-105.49 top of the Ascending Triangle. The fact that POT got back above the white trendline, which was validated resistance, and the fact that POT was able to break out above the Bullish Falling Wedge going into the bell is bullish, as the chart stands.
Bullish Falling Wedges are weak bullish patterns because all of the candles inside the wedge represent immediate resistance. If POT comes back down and retests the top of the Bullish Falling Wedge AND holds near Friday's 105.20 low, AND takes out whatever high gets put in before a retest, that would give a strong suggestion of at least a retest of Friday's 110.75 high.
For example: Let's say that POT rallies out the gate this morning to 107.95, sells off to roughly 105.20 support, then takes out the 107.95 high. That would put 110.70 IN PLAY, near Friday's 110.75 high.
Math:
107.95 - High
105.20 - Low
107.95 - 105.20 = 2.75 points of upside, beyond 107.95.
107.95 + 2.75 = Target: 110.70 IN PLAY
That's just an example as we try to follow the program, as best we can.
Since the 19.08 target in PAAS got MADE, the stock has been consolidating between 18.68 and 20.10. The 20.77 target still is IN PLAY.
Short-term, the pattern looks like a H&S Top, but the volume isn't right. It should be highest in the Left Shoulder, next highest in the Head, then lowest in the Right Shoulder. Still, we've seen many of those work out, even though the volume isn't right.
The data points of the putative neckline are an identical 18.68, which got broken on Friday afternoon. The close was just below it, at 18.66. If it plays out, the target IN PLAY would be 17.26.
Math:
20.10 - High of the Head
18.68 - Neckline
20.10 - 18.68 = 1.42 points of downside from the neckline break.
18.68 - 1.42 = Target: 17.26 IN PLAY
Targets against the trend are less likely to get MADE, and the trend is up. Looking back at the daily chart, the top of the Ascending Triangle is at about 17.74. The declining 200DMA, interestingly, currently is at 17.2776, right near the 17.26 target.
I shouldn't like to see the top of the Ascending Triangle get broken because "former resistance 'should be' support," but a quick down to tag the 200DMA and a bounce off that while the 50DMA (dotted green line) climbs for a bullish cross of the 200DMA might work out alright.
3 comments:
Melf,
Since countertrend targets are less likely to get made, what leeway would you give to be satisfied that a test of the ascending triangle and the 200dma had occurred? It appears to my naive eye that a quick break of the top of the triangle but not as low as the 200dma would be a healthy place to take a starter position,then a sharp reversal as the triangle proved support.I'd hate to miss a trade on a uncertain target.
I forot to reference that my comment was on PAAS.
Good Morning, Mark,
I'd have to see how PAAS acts if it sells off to the top of the Ascending Triangle, or down to the 200DMA.
For example, if it penetrates the top of the triangle slightly then rebounds, like POT did on Friday on its test of the 105.44-105.49 top of its Ascending Triangle, that would look fine.
But, let's say that PAAS breaks the top of the Ascending Triangle and closes at something like 17.50, below the top of the Ascending Triangle, and above the 200DMA, currently at about 17.27. That would be a close in "No Man's Land," and would put the Ascending Triangle target of 20.77 ON HOLD unless/until it got back above the top of the Ascending Triangle. YUK.
I would look at the intraday chart, to try to get a sense of how its acting at that point. Trying to figure that out right now is a bit like trying to play out a poker hand in advance, if you know what I mean. It depends on how the betting goes, how well we like our hand, etc.
That's probably a bad analogy, but I'd have to see if I can get a decent read on it if we sell off to those levels.
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