GS And POT: Problem Trades

At Monday's close, I had a paper gain of about $4,700 on my Goldman short position. Often, I will try to jockey for position by taking the gain, then re-entering at a better price, like I tried to do with the second re-entry on the AMZN short. If I can't get back in, and I couldn't in AMZN, that's fine. I get to keep whatever gain I've got.

In Goldman, I liked Monday's gap down out the H&S Top so well, I decided not to try to jockey for position, so I held all of it at Monday's close. It turns out that covering the position and re-entering on yesterday's gap up would have worked out very well, unlike my attempt to do that in AMZN. "Damned if you do...damned if you don't." LOL.

With yesterday morning's move in Goldman, back above the neckline, it became a problem trade. In the early going, it printed a high of something like 160.74, just below the 160.79 gap fill. That was a lot more strength than I wanted to see, and by 11:00AM, Goldman hadn't given up much, so I covered half of my short. Going into the bell, Goldman still was trading well above the neckline, so I covered the remaining half position.

As Kevin pointed out in the comment section yesterday, the H&S Top "could be" morphing in a Falling Wedge (the pattern in blue), which is what the SPX did on the July 14 breakout. It morphed from a H&S Top and went on a bull rampage (see the first chart in yesterday's post).

There isn't any hard and fast rule about whether or not to hold a stock that goes back above a breakdown, like Goldman did yesterday, or back below a breakout, like POT did on August 7. Sometimes, stocks will do that for a day or three, then break out or break down again. The Goldman short might work out fine, but I don't like having the problem, so generally, I throw those in. POT is a good example of why I do that.

I played POT long earlier this month for a quick gain, but what I didn't like about the breakout was that it came so late in market rally off the July 8 low. When POT broke out on August 5, sector-related AGU (Agrium) already had broken out of its Bullish Inverse H&S Bottom and MADE its target two days prior, on August 3.

Two days after its breakout, POT reversed and CLOSED back below the neckline of its Inverse H&S breakout. Uh-oh. Problem trade. Possible morph into a Bearish Rising Wedge, similar to the possible morph into a Falling Wedge in the Goldman chart.

POT closed down the next day as well, and on August 11, it closed below the Bearish Rising Wedge, confirming the pattern morph. BIG problem trade.

August 13, POT tried to break out again, above the 97.75 - 97.72 neckline, but it got refused at the bottom of the Bearish Rising Wedge, confirming that as resistance, and only managed a closed of 97.55, still below the neckline. The next session, it was down again, then on August 17, it gapped down and made a new low for the move (90.64) off the "bullish" Inverse H&S breakout above 97.75 - 97.72. BIG, BIG, problem trade. UGH.

So, as I said, these all play out differently, but anyone who threw POT in at the August 7 close of 96.98, back below the neckline breakout, didn't have a BIG, BIG problem trade, if you see what I mean.

These are my entries and exits on my Goldman short. I was short it in both accounts.




Gain: $1,700. Once again, as with AMZN, I wouldn't have had this one had Kevin not mentioned the Right Shoulder formation in Friday's Comment Section. When I saw that the RSI Sell Signal at 162.60 already had been printed, I shorted it immediately, then shorted it again in the other account right near the sell pivot. THANK YOU, KEVIN.