FCX: Hourly Head And Shoulders Top

TRADE #1:

Due to the rather sizeable overhang of sellers who have been trapped at higher prices since the two pattern breakdowns this winter, and especially due to the fact that FCX was indicated at BID: 55.10...ASK: 55.14, very near the Nested Descending Triangle target of 55.19 that would go IN PLAY on the technical breakout of that pattern, FCX looked to be slated for a "Gap And Crap" open, which means that the stock gaps higher, then fizzles.

I sold my 500 shares that I purchased for 54.58 on March 28 at the open, AT THE MARKET. I got filled at 55.10, then immediately placed an order to repurchase those shares at 54.53, near the top of the Descending Triangle, figuring that FCX was in for a retest of that breakout, at a minimum, and quite posssibly a complete fill of the opening gap. I was willing to "pay up" at the Descending Triangle, even if FCX went lower, which it did. The stock has been acting very well, and this trade allowed me to jockey for a better position.

Gain: $250.



A "nested" pattern means that there's another pattern, or patterns, "nested" within a larger pattern. In this case, we had a Smmetrical Triangle (the pattern in yellow), "nested" within a Descending Triangle (the pattern in white). Many TA textbooks will tell you that Descending Triangles ARE bearish. No, they aren't. The majority of them are, especially in a downtrend, but we can see that this one wasn't.

The lows of the pattern were perfectly flat, at 53.84 and 53.84. Subtracted from the high of the pattern, which was 54.54, gives us 0.70 points of upside on a breakout above the top of the pattern. The top of the pattern was at roughly 54.49 at the opening gong when FCX gapped higher, so that gave us 54.49 + 0.70 = Target: 55.19 IN PLAY. FCX opened at 55.14, then immediately fizzled.

As we've seen so many times in the past, "nested" pattern breakouts can be very powerful, even explosive. FCX exploded at the open to 55.14, the high of the morning, then fizzled. Although the 55.19 target got MADE later in the session, if I had insisted on selling my shares at a limit of 55.19, I would have missed the opportunity to sell and reposition at a lower price.

Market Lesson: Targets only are "what we're aiming for," and what a given pattern measurement suggests. We don't want to step over dollars to pick up a few extra pennies. If we're close to a target on a gap, or at the end of a trading session, TAKE THE MONEY!!

Trade #2:

In my other account, I bought FCX when the morning gap was filled entirely. My mental stop was 54.84, the lows of the Decending Triangle. As we discussed recently, I'll allow for a little "shakeout" below my stop for a penny or three, but not a lot more than that. On a "shakeout," the stock should recover fairly quickly.

A "shakeout" is exactly what I got. FCX printed a low of 53.825 (first white arrow), a penny below my mental stop, then quickly bounced off that. My trading thesis for buying the gap fill was that FCX would bounce from somewhere near there and probably wouldn't test the 53.84 lows at all, let alone break them. That obviously didn't work out, so I changed my trading plan to: (1) Get out at roughly break even, if I could (2) DEFINTELY sell for a loss of about $1,300 if the "shakeout low" of 53.825 got taken out.

As FCX rallied back toward Unchanged, I had my order filled out and my hand firmly on the "sell buzzer." LOL. I was able to get out AT THE MARKET with a small gain (sold at the red arrow). When we want out, we don't want to fool around with limit orders. Sell!!!

Gain: $150

Trade #3

After I sold, the rally back to Unchanged failed, and "shakeout low" of 53.825 got taken out. If I hadn't sold, I would have had to take the loss of about $1,300 and as it turns out, I would have been "shaken out" for a pretty good loss (second white arrow), because 53.76 was the low on the session. As we can see now, those lows sure were "shakeouts (Bear Traps),) but we can't know that at the time they occur, so we wait and watch, and see what unfolds.



Trade #3:

Off the second Bear Trap/"shakeout" low, FCX rallied back to 54.43 exactly, which was the Reflex Rally high off the first Bear Trap/"shakeout" low. Hmmm...that set up a move to a "higher high," above 54.43, which would be constructively bullish again.

FCX broke out above 54.43, put in a little Symmetrical Triangle, broke out above that, then pulled back a little. That was TWO bullish moves in the stock, and very compelling for another entry long, now that I could see that TWO Bear Traps had been sprung, so I bought it again, for 54.54. That was a higher price than that for which I sold it earlier, but that's immaterial. We can't be afraid to pay a higher price, as long we have good evidence that we ought to take a position, and I certainly did at this point. My stop was below the minor low of 54.30, which was the low after the 54.43...54.43 trendline was established, so not much risk if I were to be stopped out.

FCX rallied smartly right after I bought it. I "sold into strength" for a gain of $1,000.




Gain on the 3 trades today: $1,400.
Gain on the 9 closed FCX trades since March 23: $7,550.

I have an open positon of 500 shares, repurchased this morning for 54.53.
Current gain on paper: $350.



NOTE: Notice that a Bull Flag (pattern in yellow) is "nested" within the Right Shoulder.

When FCX sold off to only 54.45 on Tuesday, I was disappointed that it didn't go down and successfully retest the neckline of the Bullish Inverse H&S breakout (pattern in white), and was doubly disappointed to see that it set up a near-perfectly flat neckline (horizontal red line) of a possible Bearish Head & Shoulders Top. The prior retest low was 54.44, so the putative neckline is 54.44 and 54.45.

This putative H&S Top isn't nearly as broad as the Bullish Inverse H&S pattern, but it's there nonetheless. The Bears obviously would like to break the neckline, and then also break the neckline of the Bullish Inverse H&S pattern. If The Bears can succeed in doing that on a CLOSING basis, that would call any near-term bullishness into serious question.

What militates against The Bears being successful are a number of factors:

(1) FCX has had TWO bullish pattern breakouts in the Daily Chart, which trumps the Hourly Chart. Patterns in longer-time frames tend to hold more weight and have more significance.

(2) Beginning with the Fakeout Low of 46.10 a few weeks ago, Ms. Market continues to pull off Bear Traps, like the two that we witnessed today. Today's opening "Gap And Crap" gambit was a Bull Trap because the rally fizzled and took out the Descending Triangle low, but as of today's 55.24 close, Bulls who bought the 55.14 aren't trapped any more. It is the Bears who shorted that opening, or anything below it, who are trapped as of today's close.

(3) In a H&S Top, the high of the Left Shoulder should NOT be taken out to the upside during the formation of the Right Shoulder. There should be a diminution of buying interest in its formation, prior to a tank below the neckline. The high of this putative Left Shoudler is 55.25. That got taken out to the upside going into the closing gong. FCX put in a high of 55.31, so that's another one of those "shots across the bow" from The Bulls.

If The Bulls can take out the 55.65 high of this putative H&S Top, that would negate the bearishness of the pattern, and The Bulls would have another upside target IN PLAY (the height of the pattern, added to the takeout of 55.65). If that were to occur, it wouldn't mean that this wasn't a putative H&S Top.

It would mean that it was a Head And Shoulders Top that failed to materialize.