Thursday, April 12, 2007

The Trade That Wasn't - CDW Corporation (Public, NASDAQ:CDWC)


The first chart is a daily timeframe of CDWC which gapped up on the open this morning. I plotted the resistance line in blue before the open. As we can see on the 15 minute timeframe below, resistance was taken out in the OR but failed. It was followed by an orderly pullback and a second challenge on the 6th bar. Why didn't I take the trade? Red flags: after the OR, volume all but dried up, the preceding bar (bar 5) was red, resistance too close to OR high and failure would result in a scratch or a small loss. Other than that, the 5 period MA was in close range and the preceding bar was narrow, allowing for acceptable risk management.
After the second break of resistance, CDWC carved out a bearish evening star reversal pattern, followed by a bullish morning star. We'll say those two patterns neutralized each other. That's when one of our readers stepped in on a break of the red line (ORH) indicated by the blue arrow. Again, as we approached the lunch time doldrums, this break just couldn't move higher on this tepid volume. I like shallow bases but in the case of CDWC, there was sharp pullback and by the time, price retraced back to the ORH, it was exhausted.

2 comments:

hadman said...

thanks. I will keep a closer eye on volume. I really appreciate the thoughtful and insightful response!

Jamie said...

Welcome Hadman. Keep CDWC on your watchlist for tomorrow. It closed strong and there's a big gap to fill overhead.