We've got the possiblity of a Bearish Wolfe Wave here. Since I've explained the characteristics of Wolfe Waves quite a few times in the past, I won't got into to them again other than to say that the key to them is to trap as many people as possible, like the Bear Trap low of March 10, although that wasn't a Wolfe Wave. That was just a Plain Ol' Bear Trap.
The black arrow is the "Lead-In" to the pattern, at Black #1, which was a nice gain of 20%. From the high at Black #1, a pattern then emerges which is in the same direction as the "Lead-In," which is UP. The pattern, in this case, is a Rising Wedge.
The key to a Wolfe Wave is a Fakeout/Breakout at Wave #5 to trap the proverbial "everyone," then reverse and come out of the other side of the pattern, trapping Bulls who bought the Wave #5 breakout and also trapping Bears who "bought to cover" their shorts at the Wave #5 breakout, both of whom later discover that it was a "Fakeout/Breakout," and that they were caught "wrong-footed," buying at exactly the wrong time.
Wednesday's candle was a new high for the move that closed lower than the prior day's close, so as the chart stands, that's a possible Reversal candle. If FCX now takes out Black Trendline #2- #4, which also is a validated trendline, that's addditional confirmation of a reversal. A takeout of 55.11, which was an EXACT gap-filling low would be further confirmation.
On any breakdown, the target line (Black #6) is established by connecting the high of Black #1 and the low of Black #4, and extending that trendline on down. If that were to occur, we can see by looking at the target line (Black #6) that FCX "could" breakdown here, short-term, go down and tag that target line near the Bullish Inverse H&S neckline and bounce higher, and there won't be any technical damage done the chart on an intermediate-term basis.
Bulls shouldn't malinger and drift lower, lower, lower, and especially shouldn't take out the low of the Right Shoulder, at 51.21. Right Shoulders of H&S patterns should not be taken out, and in this particular case, that 51.21 low also was the second successful retest of the Bullish Falling Wedge breakout of St. Paddy's Day. That was strong support for The Bulls and if they give that up, it's...back to the drawing board.
When we sell a stock that is bullish, looking for a chance to get back in at a lower price ("jockeying for position"), we risk the chance that might not ever get the opportunity to buy the shares back. I've been "jockeying for position" in FCX because my thesis has been that there would be a good bit of backing and filling, due to the winter overhang of sellers, i.e., longs who have been trapped at higher prices and who would be willing sellers on rallies. Thus, I've been selling gap up openings, like I did yesterday, in anticipation of a "Gap And Crap" due to that selling pressure. Yesterday, the H&S Top target of 57.85 also got MADE (that's where I sold), so that was an additional reason to "sell into strength."
Yesterday's selloff gave me another opportunity to buy back the shares that I sold at the open, adding to my FCX war chest. If this entry were a brand new position, I would have thrown it in near the close, given the fact that the session was a possible Reversal Day, and given the threat of the Bearish Wolfe Wave #5 Breakout/Fakeout.
However, I don't have any downside risk in these share, since I've "jockeyed for position." FCX would have to have a huge gap down below the March 10 low for me to lose the $10,900 gain that I've banked, so I held them since we've still got the Bullish Inverse H&S target of 60.42 IN PLAY, and major support (neckline...low of Right Shoulder) hasn't been broken.
If we break below the "possible" Bearish Wolfe Wave, I might have to take the hit and attempt to "jockey for position" again at lower prices. LOL. The bottom of the pattern comes in today, April 7, at 55.69, so 55.68 would be a technical violation of that trendline, so we'll see how it goes.
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