MS: Double H&S Top Fractal

From Monday, on MS:

"I went with the 28.10 for a short entry, but I didn't get filled. It didn't matter if I had chosen the 28.06, either. The session high was 28.04. Curses! LOL."

I fared better yesterday on a short entry into Morgan. I put my order in at 28.22, just below the complete fill of Monday morning's gap down from Friday's 28.27 close, and got filled. The 28.27 gap was filled entirely. Morgan went through it and rallied to 28.47 where it topped out for the session.

Stocks often trade in "fractals," which is a fancy way of saying, "repeating patterns," so don't be intimidated. In fact, at cocktail parties the coming weekend, we'll say, "By jove! Did you notice that DOUBLE fractal in Morgan last week?" Then, just when everyone is terribly impressed with what geniuses we are, we'll pour our drinks down the front of ourselves to demonstrate what imbeciles we really are :)

In this DOUBLE H&S Top "fractal" of the larger H&S Top in the daily chart, there is a self-contained H&S Top "nested" within the Head (pattern in yellow) of the larger H&S Top pattern (in white). When it broke down, that put a target of 27.91 IN PLAY.

28.47 - High of the Head
28.19 - Neckline

28.47 - 28.19 = 0.28 points of downside on a break of 28.19

28.19 - 0.28 = Target: 27.91 IN PLAY

Given the fact that the general market was holding up well, I covered my short at 27.91 when the target got MADE, and planned to reposition short at a better entry, depending on what transpired as trading progressed.

By mid-afternoon, Morgan had a "possible" Double Bottom in place at 27.89 and the 27.91 DOUBLE H&S Top fractal that got MADE. When a target gets MADE, that doesn't mean that its going to stop right there and turn in the other direction, but sometimes it does, as we can see here.

Just ahead of the Fed, the Double Bottom broke out, putting an upside target of 28.33 IN PLAY.

28.12 - High of the pattern
27.91 - The more conservative of the 27.89 - 27.91 lows

28.12 - 27.91 = 0.21 points of upside on a takeout of 28.12

28.12 + 0.21 = 28.33 IN PLAY

As we know, targets that are against the trend (trend is bearish) are less likely to get MADE, and this target didn't. The high of the Double Bottom breakout only was 28.27, which was disappointing. I was looking for a better rally on the Fed release to short into, and then a selloff. We got the selloff, but not the rally that I wanted.

These two pattern targets were rather puny in terms of gains, but remember that they're smaller "fractals" of a larger pattern. The same technique applies for measuring pattern targets in hourly, daily and weekly charts, regardless of how large or small they are, so it's good practice to look for patterns in various time-frames, as we did in the "blank canvas" exercise in Morgan at the weekend.


Gain: $300