I'll go into that later, but let me walk you through the formula real quick. You have a large cup staring at you combined with a triple top. The triple top partially completed. I would have liked it to dip down to 41 for a good completion to that triple top. My thesis is that if it breaks through 45.55 then it will break out to a new high with a potential target of 42+the height of the large cup or 45.55+the height of the triple top formation. The cup/handle is a continuation pattern, but the triple top at the end is typically a reversal pattern. This is our problem here. We'll take a look at this chart with different indicators in a later post.
Just a quick note on MU that I covered. Goldman analysts have done this routine in the past where they rated a downtrending equity a "sell" right after a notable low. I remember they did this with VSE. They have done this countless times and it becomes a game of chicken. Do you listen to the analyst who just happens to be the leading broker dealer or do you trust your charts? Goldman analysts dont seem to be right and I believe this is purposeful. Im sticking to my price target of 17 dollars on MU.
I have several screens of indicators that I utilize. The question has been asked how do you use so many indicators. I only use a few main indicators and just use the other ones as confirmation where I glance at them to get the big picture. Some indicators work with some charts while other indicators are completely useless. Trading is like playing the piano. There are two staffs you have to pay attention, you have to listen to see if things are in tune, you have to look at some guy waving a baton around, etc. Remember my favorite indicators that I like to look at in the charts? I use the same when I look for an entry point during intraday. In the following chart, I am looking for an uptick in OBV. The downtrending OBV is a negative sign and I want to enter in on the uptick in OBV. As you can see 14.3-14.4 was a good entry point and we knew that from the uptick in OBV. The OBV was our signal to get in and it worked as designed. The Fibonacci retracement was our signal to exit. The ADX confirmed the decision to exit. Notice when it bounced off of the 50% line the ADX ticked up which tells me that this move is strong and has legs. When using the Fibonacci lines, you know that its going to bounce off of one of the lines. Its just a matter of which one. Notice the timeframe in the charts. You have a matter of minutes to make a decision. Actually, the uptick in OBV gave you 60 seconds to make a decision. Then you had another two minutes to make your entry. If you hesitate or are indecisive then thats where you will find yourself in trouble. If you want to be the pianoman, then the orchestra is not going to wait for you to make your decisions. If you get left behind in the tune, then things start to turn ugly. Also notice the double bottom. We didnt want to get in on the first bottom and here is why. The OBV on the first bottom was still ticking down. Im not going to trust that bottom. Im going to wait patiently to see if there is another bottom. You know there will be another bottom. On a big selloff, what do we usually see? We usually either see two bottoms or one bottom followed by another big bottom. In this case, I want two bottoms and two bottoms is what I got. Now you dont want to cash out right exactly at the top when it hits the line. You want to cash out before it hits the line. The reason is that there is not a lot of volume at extremes. If you have 10,000 shares to unload then its going to be difficult if there is only a few thousand shares traded at the extreme. You want to unload as it approaches the retracement. These selloffs go on everyday and some practice is required before you get the hang of it. As random as they look, you can see that they are not random at all. It almost seems as if there is some type of rulebook being followed with this selloff. There was a double bottom, an uptick in OBV before the trend up, and then it bounced off the retracement. This was a nice 2% trade which is not a lot, but still not an unprofitable trade and good for 30 minutes of work. Reflexes and thinking fast is key. I practice this skill at a poolhall in Queens playing air hockey. Play air hockey for 3 hours straight and you will know what I mean.
Here is another good example of what I was saying in the previous paragraph. I am bullish on MU, I disagree with Goldman... but just because I am bullish and disagree with Goldman does not mean Im right and it doesnt mean that I will over-ride my rules of engagement. Before I enter this trade, I want to see a double bottom and an uptick in the OBV. If I dont get it, then I cant enter this trade. Indeed, look what happened. We saw a bottom and then it bounced up and then another lower bottom was made. Im not seeing an uptick in OBV at all. Now while you were looking at MU for an entry point you might have missed other opportunities in the market. Its 11am and you missed that opportunity in RACK. You can set up multiple monitors and look at several different charts all at once. There are many things you can do. No one said this was going to be easy. My simple rule is that if I miss something then Im not going to go on a fishing expedition. Im going to turn off the computer and go work out or actually do some work. Thats what they pay me to do sitting at this desk on Pine St. Yeah, thats right, I actually have another job that Im supposed to be doing. Oh well. The minute you go on fishing expeditions or try to make this MU chart work out for you is the minute you start losing money.
UPDATE ON LEH Our buddy Lehman is looking better. He managed to make it over the bar of resistance, although, it is a low volume day today. This MIGHT be a time to enter, but to be truthful, my style would be to wait for the 15/30 to cross or at least the 10/25 cross. Then I would feel like I could trust our buddy.
ON TO THE Qs If you pay attention to the Qs, then you know what the market will do at any given time. In looking at the prior trend, you have the July to December run. Then you see the run chopping up from there. At the end of most uptrends or downtrends, you will always have a formation. That formation will dictate what will happen next. In this case, the summertime made the Qs look like a huge rounded cup which is a bullish sign for the index. However, at the end up the uptrend we see the evil triple top start to form. Usually, your going to have a breakdown after the triple top. You have to use a little imagination and common sense when you see chop at the end of a trend. In this case we saw one top form, and then a bottom and then a top and then a bottom. You know whats coming next. Now on the third top, you can go ahead and fade the market by shorting it right at that top. You have an uptrend followed by a triple top, breakdown is highly likely. I say risk it and go for it. However, Goldman Sachs formed a triple top over the summer and that resulted in a super breakout which is the other consequence. I say 90% of the time these triple tops break down just like what you saw happen. The super bullish sign is that when the Qs broke down on the third go round it bottomed not once, but twice. Now we have a triple bottom in the Qs. On the second bottom, look at the volume. This is more volume the Qs have seen. The stockcharts chart goes back 3 years and there hasnt been a greater volume day. So if the Qs couldnt bust it on volume this great, I will have to make the call that 42 is a tough bottom to bust. Just like we saw in the QID. The QID could not make it through the top on high volume suggesting that this nut will be tough to bust. The next test will be at 45.55. If we can make it through, then there will be a breakout. We have to pay attention to the next pattern that forms. Will it be an ascending triangle or decscending triangle or a symetrical triangle? It doesnt look like its going straight for the top. I say a triangle pattern will form and then a breakout will happen from there. In any event, Im bullish on the Qs. There was a triple bottom and high volume panic couldnt flush it down. As a long term long, I would just do it right at the current level and wait for the breakout to the upside. Its a bold call, but it wont go any lower then 42. As for trading this on the daily, it will be tough. If it goes into triangle, then the spread will become tight and make it difficult. The good news is that during the breakout there will be wider spreads. I say 4-12 weeks until triangle completion and then breakout to the upside with the target being the height of the last formation. I think the height is about 3.5 points. If anyone asks why there was a panic in February, the real answer is because the Qs made a triple top. Its not because of Shanghai and its not because of a recession. Those are excuses. The Qs making a triple top is a fact. On the last run to the third top, I think fading the trend and shorting has good probability, but there are always exceptions.
GROW trouble chart On Weds, Grow was moving real nice and then at some point there was an unbelievable 6 dollar selloff at the top. I want to take a closer look at what happened to prevent this from happening again. From the stockcharts.com chart, I can see that the price was way over the top Bollinger Band which tells me that the move is not substainable. In the intraday chart, I can see the ADX line was not strong meaning the move-up did not have legs. The selloff was stronger, but the recovery was strongest followed by a weak sell-off at the close. There was a tickup in price, OBV, ADX and A/D the end of the day hinting that the next day might be a nice daytrade up. Interestingly enough we see a nice Fibonacci bounce into the next day. You can see a double bottom on the intraday chart. All my criteria are met for a bounce play. Double bottom, tick up on OBV and then a Fibonacci retracement to a visible bounce. Close out trade at retracement. As for the huge intraday selloff, it could have been avoided if we : 1. Noticed the price peaking over the top Bollinger on stockcharts. 2. The topping of OBV and A/D. Right before the selloff, you can see a notable top. 3. ADX line demonstrates weak move up. The OBV selloff trade worked again like planned at the end of the day for a cool bouncetrade. On a huge selloff, you want to see a double bottom and then a tick up in OBV. The tick up shows up 60 seconds before you enter the trade. It doesnt give you much of a warning, but a warning none the less. Notice how at the beginning of trading for GROW today we saw a tickup in price. It was a trick. There was something funny going on with it opening up at the 38% retracement line. You know thats not going to hold. So you either had to get in at the end of trading on Thursday which psychologically daunting. After that big move, most traders wouldnt want to touch it. Our indicators tell us something different though. On the recover on Thursdays selloff we saw the ADX tickup and this was a stronger move then the way down. Then we saw a double bottom with a tickup in price and OBV. To trade GROW today, you had to be an athlete. You had to know that the opening was a trick and you neede Fibonacci lines to figure that out. To get a good price, there was an envelope of minutes. For Monday's trade, I will say that the price will go down. There were a few notable attempts at selling off grow today. The ADX line tells me that each attempt was fairly strong and that rally at the end of the day was weak. Looking at the big daily chart, I think we need one more day of flat to down trading to get it away from the top Bollinger Band. The top Bollinger is right at 33 so thats the theorhetical ceiling. Im not sure what Friday's trade will bring with it only being electronic on the Island, not sure how it goes then. We'll revisit Grow on Friday and Monday.