SVA: Another Parabolic Rally

In Wednesday's Comment Section, nydk7777 said...

"Hello melf
what is your opinion on sva?
buy or sell? thanks"

So that everyone understands, I normally haven't time to do "analysis by request," and I also don't make recommendations. In my view, it isn't as simple as buy or sell. WHERE is something a buy or sell? WHY is something a buy or sell? WHAT is the price target, and WHERE is our stop? Answering those questions takes time. Giving my opinion about something being a buy or sell is completely worthless to you. My opinion is wrong far more often than it is right. Example: Back in March, my opinion would NOT have been that the FAS would rally more than 100%...maybe 200%. Result: The FAS rallied 610%! So, you see what I mean ;)

Apologies to nydk7777, and to everyone, for my seeming to be ungenerous. If I had the time to do more analysis, I would, but I simply don't. With that aside, here we go...

When I saw SVA racing higher in pre-market yesterday morning, I remembered nydk7777's question and decided to have a quick peep at the chart, despite the fact that I knew that I didn't have time to do a thorough analysis. I didn't need to. The only question in my mind was WHERE I was going to short it, which I'll explain in a moment.

First, let's go back about five years so that we can get an idea of the nature of this beast, SVA, and what a beast it is! This stock is an excellent example of "Parabolic Rallies ... Parabolic Returns," meaning that it has monster rallies, straight up, that get called most of the way back to the origin of the rally, and sometimes lower. Catching the rallies has been tremendously profitable, but "staying too long at the fair" has been equally devastating for those caught holding the bag.

I particularly remember the huge rally off the Rising Wedge breakout four years ago, in the autumn of 2005. These swine flu stocks were like "religion" for some message board posters. "This thing is going to $20 ... $30 ... $50 ..." When SVA topped out near $8 and sold off, it was "I'm doubling down." "I'm doubling down again!" SVA plummeted to $1.81.

Oh, my! You see what I mean about "staying too long at the fair."

The rally in September, 2007 off the Ascending Triangle, on renewed swine flu fears, was spectacular, but equally devastating for those who over-played their hand. A year later, SVA found itself in Penny Stockland, at $0.75. "Parabolic Rally ... Parabolic Return," and BELOW the low of the Ascending Triangle. UGH.



This chart is "textbook" for what a sustained bull market looks like. What a thing of beauty! Instead of going parabolic like it had in the past, SVA digested the big gains after each rally with lovely bullish continuation patterns and breakouts along the way to an absolutely stunning gain of 1,567% off its December, 2008 "Penny Stockland" Bear market low. Have mercy!

Buying ANY of these four pattern breakouts was a great entry long for swing trades and intermediate-to-longer term positions. There never was a problem with any of the breakouts. Smooth sailing!



This is the chart that I saw yesterday morning, when SVA was racing higher in pre-market. A 3-day Bearish Island Reversal on HUGE volume. Uh-oh. The candle in the middle, circled in blue, is the "island." Price gapped up from the prior day's high of 9.95 printed a low of 10.01, and closed at 10.46. Wednesday, SVA gapped down, printed a high of only 9.87, then tanked and closed at 8.53, leaving longs who bought Tuesday's candle at prices between 10.01-12.50 stranded on that island.

UGLY reversal.

So, my only question was, "Do I short in the 9.80's-9.90's, making a play that the island gap will NOT get filled, or do I short it near the closing gap from 10.46 ?"

I shorted it at 9.95 in pre-market, after which SVA immediately rallied and filled the 10.46 gap. Curses! LOL.


Basis the 10-Minute chart, the "island" candle in the daily chart is a Symmetrical Triangle, which got broken to the downside on Wednesday's opening Gap Down. That put a target of roughly 7.88 IN PLAY.

Math:

12.50 - High of the pattern
10.01 - Low of the pattern

12.50 - 10.01 = 2.49 points subtracted from the trendline break at roughly 10.37.

10.37 - 2.49 = Target: 7.88, give or take.

At the opening bell, SVA came out of the gate and sprinted to the 10.46 gap, but that's all that she had in her. The opening was a "Gap And Crap" AT gap resistance. The session high got put in right there, at 10.48, and the stock came off quickly.

I covered on the first selloff, wanting to jockey for position and re-enter short, in case SVA attempted to get back over $10 again, but I never got the chance. The reaction high after the initial selloff was 9.94, right at my initial entry at 9.95 (where I thought that SVA would find resistance in the first place!), so the "island gap" of 10.01 (White #2) turned out to be resistance for the remainder of the session.


Gain: $700