SLW - Falling Wedge Breakout

I bought 5,000 SLW at 40.69 on the fill of the opening gap. The stock traded all morning in a triangle (in white), with a channel (in yellow) nested within it. Both trendlines at the top and the bottom of the pattern were validated as support and resistance (white arrows).

The majority of triangles that go beyond two-thirds of the way to the apex, where the trendlines converge (meet up with each other), resolve to the downside. It seems that Thomas Bulkowski did some research on that and something like two-thirds of the patterns broke to the downside.

Since SLW is acting bullish, and since this is only a one-minute chart, I decided to hold if the pattern resolved to the downside. I didn't want the problem of figuring out where to get back in, and losing my position. If the stock wasn't acting so bullish and if this chart were a longer time-frame, I would have sold a break of the lower trendline. You know how I feel about breaks of validated support ;)




The triangle did break to the downside, then it morphed (changed) into a Falling Wedge (in white) and then broke out to the upside. I bought another 5,000 at 40.62 as the stock sold off for a retest of the breakout.

I'm not one for "doubling down on a loser." That's a poor trading strategy, hoping that Ms. Market will bail us out of a loser. More often than not, she doesn't, and our losses are compounded. UGH.

This second entry was a purchase of a retest of a bullish breakout, not a purchase of a stock that is going down...down...down. If the selloff to support at the top of the Falling Wedge wasn't successful, I would have thrown in all 10,000 shares at the last low, prior to the breakout, which was 40.52, if memory serves. Actually, I would have given it another penny or three since the trendline at the top of the pattern was declining, and to defend against a little stop-buster.



The retest of the Falling Wedge breakout held ju-u-ust above the top of the pattern, then SLW rallied. Horizontal Resistance was at 40.80-40.81 (the yellow line) and 40.87 (the red line). The chart looked strong enough for at least a test of 40.87, so I planned to sell my initial 5,000 shares that I purchased for 40.69 at 40.84, just below that target, which I did when the stock rallied.

That left me with the 5,000 shares purchased at 40.62, and a guaranteed winner. My trading plan for those shares was to benefit from any rally through 40.87 resistance and to throw them in for a small gain if the stock came back into the high 40.60's. The Bulls had done their chart work, and it was time to RALLY!!!



Pitiful. SLW had two nominal breakouts (in name only) at the red arrows, but The Bulls failed to show up to buy either of those breakouts and the stock was back for a SECOND retest of 40.74. I didn't like that at all and threw in my 5,000 shares purchased for 40.62, at 40.75. Why in the world would The Bulls let The Bears bring it all-ll the way back to 40.74 after TWO little upside breakouts (the red arrows)? UGH.



ANSWER: Because The Bulls had run out of spinach, and 40.74 wasn't going to hold.

Oh.

Well-ll...the chart had the potential for a very nice gain above 40.87, and I was positioned to take advantage of it, but I forgot to throw some spinach out onto the field to The Bulls ;)



Gain: $1,400

SLW: Bear Trap

SLW opened Gap Down yesterday, to 39.00, breaking the neckline of a putative H&S Top in the intraday chart, and also breaking the lower trendline of a possible Bearish Rising Wedge in the daily chart, which we'll look at later. I wanted it short near 39.74 (yellow line), at horizontal resistance and at EMA resistance basis the 10-Minute chart, but the rally stopped shy of my price, so I couldn't get short there.



SLW sold off again, toward the early lows, then rallied a bit. I shorted it at EMA resistance basis the 1-Minute chart, at 39.26 (white down arrow). That worked out fine. The stock broke the early session low, and fell to 38.72. The short trade looked golden until...



...this possibly Bullish Hammer showed up (white arrow). SLW went back above the broken neckline of the H&S Top and was hanging tough, above it. UGH. That's "Ye Olde Knuckle-Biter" that we've frequently discussed. It leaves us wondering how sincere The Bears were about the neckline breakdown when they don't defend it on a rally. The Bulls "should" get hammered at that broken neckline (horizontal white line), but they didn't.

I, generally, am not real patient with "Ye Olde Knuckle-Biter," and I wasn't yesterday. I gave The Bears a chance for a few minutes to take the stock back below the neckline, but when they didn't, I decided to "take the money," and covered my short position at 39.14-39.15.



WHOA!!!

We can see that the necline breakdown and the move down to 38.72 (yellow arrow) was a very ugly Bear Trap. The Bulls rallied strongly and took out the high of the Right Shoulder of the H&S Top (horizontal red line), then challenged the bottom of the broken Rising Channel two more times, after challenging it on Tuesday (the three white down arrows). Very impressive!



Basis the daily chart, the 39.00 opening was only a nominal takeout of the lower trendline of a possible Rising Wedge (six and a half cents), but the move down to 38.72 was a fairly significant break, which we now know in retrospect, set up The Bear Trap. Ms. Market enjoys being naughty like that ;)



Gain: $550

SSO, SPX And SLW

The show was over for The Bears right at the opening gong. They opened the SSO just about smack on the lower trendline of the putative Bear Flag, which could end up as a Rising Channel, and that was the low of the session.



In the SPX, the session was a "possible" Bullish Hammer. In both of these charts, the lower trendlines now are validated trendlines with yesterday's third "hit," confirming that they are support. If they get taken down, it suggests at least some kind of retest of the lows.



SLW put in a low at 40.00 just after the opening gong, but that wasn't the session low. It rallied and put in a Symmetrical Triangle, broke it to the downside, then tanked to 39.11.

Coming off that low, SLW put in a Bullish Morning Star (circled), followed by a Bull Flag (in yellow). I liked that Bull Flag and bought 5,000 shares at 39.50. The flag broke out at 39.62, putting an upside target of 40.00 IN PLAY, which was exactly the early session low (horizontal red line).

39.81 - High of the Bull Flag
39.43 - Low of the Bull Flag

39.81 - 39.43 = 0.38 points of upside on a breakout, which was at 39.62.

39.62 + 0.38 = Target: 40.00 IN PLAY

Notice that as SLW rallied to the target, the EMAs were inverted and the 34EMA was right there, at 40.00, constituting DOUBLE RESISTANCE. I sold my 5,000 shares at 39.95 as SLW rallied into the target (it got to 39.98) because:

1. "Take profits when targets (40.00) get MADE"
2. 40.00 was horizontal resistance from the early session low
3. 40.00 was 34 EMA resistance
4. 40.00 was TRIPLE RESISTANCE from the broken Rising Channel in this 10-Minute chart...



...where the rally failed at the White Arrow. "Former support 'should be' resistance on a retest," and it was. That failure suggested a retest of the 39.11 low, for an attempt at a Double Bottom.



Coming off the failed retest of the broken Rising Channel, SLW also broke below this Rising Wedge (in white), which gave a further suggestion of at least a retest of 39.11. SLW stumbled around some at the 39.11 low, but did manage to put in a Double Bottom at 39.05, then...



...rallied back to 39.98 exactly, temporized for just a bit, then broke out to the upside. Very nice play from The Bulls, however...



...this is a rally into Channel Resistance again (the white arrow), so The Bulls need to come out onto field this morning loaded up with spinach ;)

A downside takeout of yesterday's 39.05 low and also a takeout of the last low in the Channel (the white up arrow), which was validated support, would look like a completed H&S Top, similar to the little yellow pattern to the left of the chart.



Gain: $2,200

SPX And SSO

This is the 34/55/89 RSI chart of the SPX. When any two RSIs in the Fibonacci Sequence of 8...13...21...34...55...89...144...233 have readings the are ver-r-ry close, I call that "synchronicity." If the faster RSI is above the next RSI in the sequence, it's "Bullish Synchronicity." If the faster RSI is below the next RSI in the sequence, it's "Bearish Synchronicity."

In this chart, all of the cases a synchronicity are bearish. The trigger for a signal, in these bearish cases, is if the stock prints a penny below the prior day's session, and also closes lower. If it closes higher, the signal is very suspect.

I put this chart first, without benefit of seeing the SPX price chart, because indicators can't "see" the price chart either. They only do what they do best: they "indicate." They don't TELL US to do anything. We must decide if we want to act on what any particular indicator is "indicating."

We can see from this chart that, on August 31, the 34/55 RSIs went into Bearish Synchronicity, with readings that were very tight, and with the faster 34 RSI positoned below the slower 55 RSI. That meant that a print the next session of 1209.34, a penny below the August 31 session low of 1209.35, would be a sell from this particular indicator.

I stress that because indicators are just one clue as we collect our Body Of Evidence. They need to be viewed in context with what the price chart is doing, so let's look at the SPX chart.



The 34/55 RSI "Sell Signal" at 1209.34 was issued the session after a "possible" Data Point #4 of a Bear Flag, when the 34/55 RSIs were at Bearish Synchronicity. Again, that's just one clue. What we'd look for next is a break of the bottom of the putative Bear Flag, then some sort of retest of the 1101.54 low after that.

There are some additional notes on the chart. Notice, in particular, what happened after the SPX was down seven days in a row. A stock or index going up or down for any number of consecutive days in a row is not a reason to buy or sell, unless anyone is fond of Russian Roulette ;)



These Bear Flags/Rising Channels can be tricky. They can ratchet their way higher and wear one out. In the SSO, for example, we've got a gap just overhead from Friday's Gap Down opening that they might try to fill early next week.

As these price charts stand, though, it's Advantage: The Bears

SLW: Gap Up Opening

I played SLW four times yesterday, looking for it to go higher on the strength of the Bull Flag breakout and the bullish daily chart, but without success. The stock temporized and formed two more Bull Flags (in orange and in green), so I threw the trades in. It would take too long to explain the four plays that I made and the execution sheet is as long as my arm, but I had a loss of $1,175 on the session.

SLW is called gap up at the moment, at BID: 40.60...ASK 40.68, above the 40.52 high on this chart. Oh, now-w they're going to rally it! Gr-r-r...LOL. I won't chase that.

SLW: Breakout Attempt On The Weekly

SLW had another fast selloff just after the open, but held above the 39.18 gap low then raced higher. I got long near unchanged, at 39.73. The stock then broke out of this Rectangle to the upside, putting a target of 40.74 IN PLAY.

39.98 - identical highs
39.22 - the higher of the two lows

39.98 - 39.22 = 0.76 points of upside on a breakout

39.98 + 0.76 = Target: 40.74 IN PLAY

When patterns break out or break down in the intraday charts, we want to be mindful of the bigger picture in the daily and weekly chart to see if something else militates against a target getting MADE.



40.47 was the high of last week's possilbe Doji Star Hangman, so-o...



...I sold at 40.44, near that high, expecting some resistance from The Bears. The session high of 40.52 got put in three minutes after I sold.



The Bulls made two attempts to regroup and break out of Symmetrical Triangles (the patterns in white and in yellow), but they weren't successful. When those two patterns broke to the downside, SLW sold off pretty good. The Bulls finished the session with a breakout of a Bullish Inverse H&S pattern (in orange) and got close to that pattern target of roughly 39.80.



Gain: $3,500

SLW - In The Channel

I wanted to buy SLW on a fill of the opening gap, or to sell short if it got to the top of the channel. It didn't do either one, so I was sidelined.

SLW: Anudder Morning Selloff

SLW sold off again in the morning, to the 13, 21 and 34 EMAs (exponential moving averages), which were properly threaded in sequence and bunched to together between 38.24-38.42. I got long at 38.28.

Given the facts that we've got the "possible" Bearish Doji Star Hangman in the weekly chart (see weekend post) and we've got a possible Bear Flag/Rising Channel in this hourly chart (pattern in white), I allowed a little wiggle room below the EMAs, but not a lot. My expectation on the trade was for SLW to use the EMAs as support, and rally, but the stock went a good bit below them, which I didn't like.




SLW continued straight down and nearly hit my 38.79 stop, which was the last low prior to the rally on Friday. Blaaaah. I adjusted my trading plan to "sell any rally to the EMAs basis this 5-minute chart" and sold at 38.40-41.



In the next hour, SLW put in a big 'ol white candle and rallied to a high on the session. Oh, well...LOL.



Gain: $600

SLW: Weekly Chart

They smacked SLW again early in Friday's session, but it came roaring back just as it did on Thursday. I liked that resilience. I bought it for 37.70 and sold it on the rally back to the 38.10 top of the Falling Wedge (white arrow). I wanted my shares back on a pullback, but there wasn't any. The stock was gone on the upside.



Basis the weekly chart, despite the wicked Smackdown off the April 11 breakdown at 44.44,following the Double Fakeout/Breakout, SLW never closed below the Kumo (Cloud), in bearish territory. The mid-June and mid-August lows both found support near the bottom of the Kumo (Cloud).

Interestingly, both the July 22 and August 26 candles are Doji Star Hangmen. I don't infer anything from one candlestick. The July 22 Hangman did result in another trip down to the bottom of the Kumo, but it's ba-a-ack. Notice the June 25, 2010 Gravestone candlestick. It was short-term bearish, but anyone who insisted that it had longer-term implications and remained stubbornly short the stock got caught in an ugly short squeeze. Volume was poor after the upside technical breakout and didn't show up until the stock already had rallied 50%. SLW scored a 100% gain off the August, 2010 Ascending Triangle breakout. As you know, I'm not a big fan of volume.

We've got a "possible" Ascending Triangle setting up in the chart. A pullback here wouldn't be bad at all, as long as the ascending line holds (Black #1 - #3) and the stock eventually breaks out. Given how badly the general market has gotten whacked recently, this chart looks pretty decent, as it stands.




Gain: $2,000

SLW: Morning Shakeout

We got two of the upside targets that were IN PLAY in SLW in mid-July (37.43 and 40.015), but the stock went into a serious tank to the downside after that.

This RSI chart has gotten back into synchronicity since the early August Smackdown in the stock, though, and was poised to kick higher if SLW could rally, but yesterday's open looked nasty.



SLW opened down hard and took out the horizontal support levels (the white arrow below the two lower horizontal white lines). UGH. But, hang about...the stock reversed to the upside and took out the late Wednesday afternoon high (yellow arrow)! Hmm-mm...

SLW then sold off to the middle horizontal line (orange arrow), then rallied to a new high on the session! Notice how the story was unfolding at this point. That looked like a classic shakeout of The Bulls, causing them to sell into the early weakness and it set up a nice short squeeze of The Bears if it could continue to rally. I bought 5,000 shares at 37.21, just above the late Wednesday high, then sold into the rally at 37.65 and watched to see how trading progressed.




I'm fond of these "nested" patterns (the little yellow Symmetrical Triangle within the channel) and am especially fond of successful retests of breakouts (the white arrow), which validates the top trendline (former resistance) as support. The breakout put a target of 38.18 IN PLAY.

37.78 - high of the pattern
37.21 - low of the pattern

37.78 - 37.21 = 0.57 points of upside on the breakout above 37.61.

37.61 + 0.57 = Target: 38.18 IN PLAY

I got long again in the channel, at 37.42, and sold at 38.16, heading into the target of 38.18. SLW did much better that, rallying to a high of 38.78 on the session before easing off for a close of 38.02






Since reversing higher off the narrowed Kumo (Cloud) on August 9 on a big white candle, SLW has remained above the Kumo, or very near the top of the Kumo (Cloud), in bullish territory. It needs to take out resistance in the low-to-mid 40.00's




I played FCX a couple of times yesterday, too.

Gain on SLW: $5,850
Gain on FCX: $1,150
Gain on the session: $7,000

FCX: Cup & Handle

I can't post much due to my poor eyesight, but I thought I'd update FCX.

A week ago, The Bulls managed three closes back inside the broken 2011 Falling Wedge, but that was all that they had. They got sent back for a retest of the 41.20 breakdown low which, thus far, has held at Monday's 41.455 low for an attempt at a Double Bottom.

The width of this possible Double Bottom is very narrow. Picture that all of the candlesticks above Black Trendline #2-#4 are players for The Bears and you'll get an idea of how daunting that resistance was on The Bulls' first bid to get through it. The Bears shorted it and The Bulls who didn't sell the technical breakdown took advantage of the reflex rally to broken support, and sold. The proverbial "everyone" was a seller.

As skimpy as this possible Double Bottom is, at least The Bulls have established short-term support at 41.20-41.445, so if the stock can move higher, The Bears are under a little bit of pressure to Buy To Cover their positions as the stock moves away from the lows. The August 17 high of 47.59 is the pivot for the Double Bottom which "should" bring in some short-covering if The Bulls can manage to take it out.

I don't try to predict what a stock "will do." I try to focus on what it "is doing" and early yesterday morning, FCX was heading south again.





To the left of the chart, the pattern in blue is a Descending Triangle. The lows were 42.70...42.69...42.68. Descending Triangles tend to be bearish, especially in stocks that are in a bearish trend, like FCX is. There were three "hits" to each of the trendlines and the pattern finally resolved to the downside, as one would expect in a downtrend.

After the selloff from the Descending Triangle breakdown, however, The Bulls were able to establish a Cup & Handle pattern, the highs of which (42.70 and 42.66) were right at the bottom of 42.70...42.69...42.68 Descending Triangle resistance. Notice the nice width of the cup portion of the pattern. As is often the case with Cup & Handles, the handle of the pattern (in yellow) was a Bull Flag that hovered near the top of the pattern.

After the upside breakout, FCX pulled back for a retest. I placed my order for 5,000 shares at 42.67 (white up arrow), just above the 42.66 high of the right lip of the cup. "They" filled me in batches over the next five minutes following my order entry and gave me only 4,999 shares. LOL. The retest lows ended up being 42.67 and 42.66, so The Bulls nailed that one!

The Cup & Handle breakout put 43.20 IN PLAY.

42.66 - the more conservative of the two highs of the cup
42.11 - the low of the cup

42.66 - 42.11 = 0.55 points added to the breakout above 42.65 (the trendline had a slight downward slope)

52.65 + 0.55 = Target: 43.20 IN PLAY

After the successful retest of the Cup & Handle breakout, The Bulls formed and broke out of another Bull Flag (pattern in orange), putting 42.96 IN PLAY

42.86 - high of the flag
42.69 - low of the flag

42.86 - 42.69 = 0.17 points of upside on a breakout above 42.79

42.79 + 0.17 = Target: 42.96 IN PLAY

Since the larger pattern (Cup & Handle) target of 43.20 was IN PLAY, I didn't sell any when the 42.96 Bull Flag target got MADE, but since FCX is in a downtrend, I did sell at the white down arrow, to defend against a possible Double Top at 43.10. The 43.20 Cup & Handle target ended up getting MADE, and The Bulls managed to take the stock to a high of 43.54 on the session.

We'll see if The Bulls can do anything with this possible Double Bottom basis the daily chart, but yesterday's bullish pattern construction after the Descending Triangle breakdown and selloff is the type of thing of which we would like to see a ot more from The Bulls in the days and weeks ahead.



Gain: $2,000

FCX: Rally To 45.88 Resistance

FCX was called higher yesterday morning from Wednesdays's close of 43.55 and opened at 44.30. On the heels of Wednesday afternoon's selloff, that was marked for a "Gap And Crap" opening, meaning that The Bulls' attempt to bully their way through that nearby price resistance wasn't likely to work and that the opening play likely would get called back for a fill of some, if not all, of the opening gap. Most of the opening gap got filled on the pullback to 43.66.

An opening gap out of a pattern has a much better chance of being a Breakaway Gap, or a "Gap and Go," rather than the "Gap and Crap" opening that we witnessed yesterday, which is known as a "common gap." The latter is tantamount to a quarterback trying to throw the "long bomb" on 3rd down and 25 into heavy traffic. Can we say I-N-T-E-R-C-E-P-T-I-O-N?

Rallies have a much better chance of being sustainable if The Bulls can establish a running game, i.e. a pattern or patterns, then then throw some long passes (breakout rally).

The Bulls settled in and formed a Bull Flag/Falling Channel (the pattern in white). The opening gap is the flag pole. The duration of the flag is a bit dragged out to be called a Bull Flag for some technicians, but I'm never one to quibble. If it walks like a duck...quacks like a duck...but, it's perfectly fine if anyone wants to insist that it's just a regular ol' channel. The only thing that matters is how it plays out.

At the white down arrow, we've got validated resistance, and we know how significant that can be if The Bulls can take out a validated trendline to the upside. That tells us that The Bears failed to do their job of smacking The Bulls down and that they've weakened a bit.

I got long at 44.05. The Bulls had established the running game (formed a pattern) and the Fibonacci 13, 21, 34 EMA's (exponential moving averages) were getting "in gear" with the 13 above the 21, and the 21 above the 34. The Bulls now were ready to throw some nice passes (break out and move higher). The Bulls broke out of the pattern at 44.20, putting an upside target of 45.18 IN PLAY.

Math for the Bull Flag:

44.64 - High of the pattern
43.66 - Low of the pattern

44.64 - 43.66 = 0.98 points of upside on a breakout above 44.40

44.20 + 0.98 = Target: 45.18 IN PLAY

After the breakout and rally to Yellow #1, the Bulls established another pattern, The Rectangle (in yellow), then broke out of that. Lovely. That breakout put a target of 45.28 IN PLAY.

Math for The Rectangle:

44.89 - the most consevative of the highs
44.50 - the most conservative of the lows

44.89 - 44.50 = 0.39 points of upside

44.89 + 0.39 = Target: 45.28 IN PLAY

What wasn't lovely was that The Bears managed to throw The Bulls for a sizeable loss, back below the pattern breakout, which put the 45.28 target ON HOLD. UGH.

The loss was more that just "Ye Olde Knuckle-biter," where we're back below a pattern breakout wondering how valid the breakout was. The Bulls got thrown for a loss well inside the pattern, and the EMAs were turning down.

I never try to predict anything. I'm just trying to follow orders as best I can and beyond the analysis, foremost in my mind when I'm in a trade, is MONEY MANAGEMENT. As the trade progresses, I'm asking myself how well I'm liking the trade and whether or not I see a possible problem.

I didn't like that pullback, well inside The Rectangle. I sold on the rally back toward the EMAs, at 44.73, and watched from the sidelines.




The Bears were able to morph The Rectangle (in yellow) into the Left Shoulder of a H&S Top, then break that pattern to the downside! Hmmm-mmm...

Morphs (pattern changes) are very common, particularly in a 1-Minute chart. Literally, one minute a pattern can look like on thing, then the next minute or three, it "morphs" into something else.

The Bears weren't making much progress with their H&S Top breakdown, and with those patterns, The Bulls always have a chance of morphing The Head and The Right Shoulder of the pattern into a Channel, then taking out the high of the Right Shoulder, then eventually, the high of The Head. Like this:



The Bulls not only morphed the H&S Top into a Channel breakout, they also threatened to put in a Double Bottom (the pattern in red). I got long again at 44.67 when I saw that possibility developing. The high of the Right Shoulder of the Bears' H&S Top is where the top red horizontal trendline begins. As we've seen in the past, when The Bulls take out the high of a Right Shoulder (that top red trendline) AND take out the high of The Head, that can spell trouble for The Bears. A Double Bottom breakout would put 45.24 IN PLAY, very near the 45.18 and 45.28 targets (the latter target would go back IN PLAY above 44.89).

Math for the Double Bottom:

44.82 - the more conservative of the highs
44.40 - the more conservative of the lows

44.82 - 44.40 = 0.42 points of upside on a breakout

44.82 + 0.42 = 45.24 IN PLAY



After THREE bullish breakouts, I didn't have any problem holding through "Ye Olde Knuckle-Biter," which went a bit below the Double Bottom breakout. The Bulls scored a fourth pattern breakout, the little white Bull Flag, then rallied to the targets. I sold at 45.27 as the last of the 45.18, 45.24 and 45.28 targets got MADE. The chart was so bullish, I was sorely tempted to hold out for a test of the bottom of 2011 Falling Wedge in the daily chart, which we knew came in at 44.883 yesterday, but I've learned to "Take profits, or at least some profits, when targets get MADE." We've all sat in winning trades, only to see our gains evaporate. I "coulda" held back half of the shares for the anticipated rally to 45.88, but with three targets getting MADE, I sealed the deal.



Lest any of us thinks that players didn't know that the bottom of the 2011 Falling Wedge came in yesterday at 45.88, look where the early afternoon rally ended, prior to a pretty decent selloff (the white down-sloping channel): 45.87.

For traders playing that last Channel breakout, either of the up trendlines coming off it would be good for stops, depending upon how loosely or tightly one would wish to play it.



Rallies back to broken support (in this case, the bottom of the 2011 Falling Wedge) are common, and are to be expected. The Bulls did a very admirable job getting there with all of those bullish breakouts in yesterday's trading, but couldn't manage a close above it.



Gain on the session: $6,350