GS, VLO And USO

In the Comment Section awhile back, Mark asked me (paraphasing) if I tried to anticipate moves in the market. Patterns, and so forth. VERY astute question.

We can't possibly know what the market is going to do, but we certainly can see what the market IS DOING, and based on that, we can be prepared for what we're going to do about it. Example, from yesterday's post:

"Speaking of suspicious......the MACD has me suspicious about another rally attempt in Goldman, toward the top of the Rising Wedge.

If we should see Goldman go down there and tag the bottom of the Rising Wedge, or come close to it (including a nominal violation to the downside), then rally back to UNCH...then go green...then take out yesterday's high of 143.31...

...those moves would suggest "Be careful, now!"

Yesterday morning's pre-market gap up opening indication of BID: 144.00...ASK: 144.14 in Goldman, above the prior day's high of 143.31, was a pretty good "tell" that Goldman would make some kind of bid for the top of the Wedge because that was a stop-busting open.

Many shorts will use the the high of the prior session, in this case 143.31, as their trailing stop. When Goldman opened at 144.65, a good bit higher than the initial indication and a good bit higher than the prior day's 143.31, it was GAME ON!

Shorts who wanted to cover just above the 143.31 trailing stop weren't given the chance to do that at the open. Goldman pulled back only to 144.40, and the shorts were squeezed higher...higher...higher from the "Just For Openers" open. The rally, directly to the top of the Wedge, might seem like a bit much off the Bernstein upgrade, but I would suggest that a move like Goldman had yesterday has little to do with anyone making a call, beyond the opening gap up.

Shorts simply were caught out of position and the more Goldman rallied away from the "cheap exit" point of 143.31, the more they had to pay to cover their position. Along the way, "buying begets buying." Longs saw the top of The Wedge overhead, and they stepped in for the rally, which ended up happening all in one session.

Lesson: As painful as it is, when we're busted on a "Just For Openers" open, aka "Take No Prisoners" open, a pullback to a better price usually doesn't occur. It's often best to admit from the jump that we're busted, and get outta there.

There are many, many examples of that on a larger scale: an opening that takes out days' and/or weeks' worth of trading. One of the most recent examples is the Valero Energy (VLO) open on Wednesday.

Although the 50/200 DMAs were inverted, prior to the release of earnings on Wednesday, VLO was performing beautifully. Three bullish breakouts of patterns. Out came the news of a large loss AND a secondary offering, and VLO was indicated Gap Down, below the 19.98 low of the Wedge (in purple), and was threatening to open below the 19.58 low of the Rectangle (in green). UGH.

I'd like to invent a "Game Simulator," where we're shown a chart and asked, "VLO is indicated Gap Down at the open, at BID: 19.75...ASK: 19.76. You are long 2,500 shares, at 22.00. What would you like to do?"

When stocks are indicated Gap Down below obvious support, or Gap Up above obvious resistance, it's usually a "Just For Openers" opening, aka a "Take No Prisoners" opening. There is little or no chance given to get out at a better price. VLO opened at 19.64, below 19.98 support, quickly took out the 19.58 support (low of The Rectangle, in green), and now is 18.25, 7% below the 19.64 opening price on Wednesday morning. Yesterday's candle "looks like" an encouraging Bullish Inverted Hammer, and yes, VLO "could" rally back above broken 19.58 and broken 19,98 support, but I can show you a lot of charts like this one in which the stock went down...down...down... Yeesh.

One last point: earnings. Remember how bullish the chart of FSLR was, prior to earnings? FSLR exploded to the upside when earnings were released, but I wasn't in it, not wanting to get blind-sided by the earnings. This VLO chart is a good example of why I'm cautious about being long ANYTHING going into earnings. VLO looked fine, other than the June 1 Bearish Doji Star Hangman above the 200 DMA, which indicated that there was a good chance of a pullback, but there also were a lot of upside targets IN PLAY. The fundamentals trumped the technicals, and... WHACK!!!

Back to Goldman...

Goldman closed at 149.47, about eight cents above the top of the Rising Wedge, which came in yesterday at 149.397, so that's a technical breakout of the Rising Wedge. Volume was very deficient, lower than it was on any of the other three moves to the top of The Wedge. While that's encouraging for The Bears, Goldman is at a new high for the move, and "a breakout is a breakout" in my book, so I'm not interested in shorting it.

Although Goldman has broken out, technically, the slope of top of the Rising Wedge is 0.4127, so we "move the chains" to 149.81. To sustain the breakout today, Goldman needs to trade at that price, or better. Yesterday's high was just below that, at 149.75.

What will Goldman do from here? That's the wrong question. Some of us would "predict" that correctly. Some of us wouldn't. In another situation, different ones among us would get it right, and others wouldn't.

The questions that we always need to ask are:

1. What IS Goldman doing?
2. What are we going to do ABOUT it, if anything?

Answer to Question #1: Goldman IS at a new high for the move, and Goldman IS broken out of the Rising Wedge to the upside.

Answer to Question #2: Up to the individual, of course. If anyone is long or short Goldman, what is your target? Where is your stop? The usual questions regarding a trading plan, and risk management.

Anyone short as of yesterday's close is caught short a bullish technical breakout. Yes, it "could be" a Fakeout Breakout, but manage the risk, and don't let a small loss turn into a BIG loss and remember the Rising Wedges aren't always bearish. Witness:


The Rising Wedge in the USO had a BULLISH resolution. So did the Rising Channel. Wednesday's black candle was very encouraging for The Bears. It came down and filled most of the gap from May 28, but closed above The Channel breakout. Still, it was a rather unpleasant looking black candle, and looked like it could be the beginning of a downside reversal.

Nope. Thursday's candle was a new high for the move, and a new closing high for the move. Those who shorted what looked to be a Bearish Doji Star Hangman at the top of the Rising Wedge on May 27, playing it for a bearish resolution, have a problem. They're short TWO breakouts to the upside, and their positions currently are under water by about 10% vs. a loss of only 2% if they had covered the May 28 breakout of the Rising Wedge. That could change for The Bears, but at the moment, they're fighting Ms. Market.

Remember now, we're not predicting anything. We're looking at what IS happening in the USO (and Goldman) and we're looking at what we would do ABOUT it, not at what the USO and Goldman are going to do.