After gapping down on the open, CAL set up a low risk base and break pattern in early afternoon. My target was a gap fill at which point I took a partial. CAL continued higher and held the gap fill point as support on the pullback. It closed strong and looks poised for a technical bounce based on the recapture of the 200 MA and the high volume, bullish reversal green hammer on the daily timeframe below.
8 comments:
Usually that is a sign of institutions buying. I wouldn't be surprised if the equity takes off the next couple of days.
Thanks for the tip KC. Could be a good swing trade idea.
Hi Jamie,
I traded CAL short today, on a break of the fourth bar low. This was below the 200 day moving average on the daily chart. Is there anything on the daily chart that would've told you this move wouldn't continue to the downside? Also, at what point on the 15 minute bar would you have exited the short?
As always, thanks for your help.
ADD Trader
@ADD,
I'm no Jamie, but here's my take:
The support near $35 on the daily would have given me pause to short. Also, if you draw a downward sloping channel across the highs and the lows, it was near the bottom of the channel today, which is also likely to give the stock some resistance. Plus, the recent action has been dramatically down, so I wouldn't expect a big continuation without some back and forth at $35 at least. The 200 day MA is important to institutions as well.
As far as your trade, was it a daytrade? If so, what was your target? The 5th bar bottom looks like a pretty good move from your entry depending on your initial stop level. If your stop was the top of the 4th bar, then you'd have about 1R, so it wasn't the best setup in terms of risk/reward...
The 5th bar finished in a volume spike, which Jamie has said often signals a potential reversal. if my stop was the 4th bar high, I would have exited the short when it retraced back to my entry point on the 8th bar, or else I would have exited as it stalled out near 12:00. Once a stock stalls, it really can break out either way--it's a whole new trade at that point, and if you wouldn't enter a new position at that point, you shouldn't be there if you already are. You want to enter a position at the beginning of a move rather than during congestion, gambling on the direction of a breakout. I don't always do that myself, but it's what I strive for!
Thanks Prospectus, good analysis.
I'll just add that when the 5th bar failed to close below $35.00 after breaching by 20 cents, I would have taken a partial and moved my stop to breakeven. This often happens when a stock tests major support.
$35.25 was the pivot high in 2002 and it has been tested a few times as support over the last few months. When a stock tests major support (incl. pivot point or 200 MA) on big volume and support holds, it's usually a good time to get long.
As an example, look at AMZN on the intraday timeframe. This afternoon it breached pivot point support of $60.62 from April 27th and this morning. The breach on the 1:15 bar was quite deep and on very high volume. It failed and AMZN rallied almost 1 pt. from the pivot.
Failures usually result in fast moves in the opposite direction. Take advantage of it in your day trading strategy. Works best with highly liquid stocks.
Thanks Prospectus and Jamie,
My target was the Fib extension from the previous day's high to the opening range low. Thanks for your analysis on this trade, it really helps a lot. I have been noticing lately, that if a short doesn't break fairly quickly after the signal candle, there is a good chance it will base and reverse upwards, à la CAL today.
ADD Trader
@Jamie: Thanks for that insight about failures!
How do you define a pivot point? Is it support-turned-resistance or vice-versa, or is it some average of highs/lows, a mathematical kind of thing? Are pivot points always horizontal, or can they be trendlines as well?
@ADD: I've noticed that, too. From the posts on Trader-X's blog, most of those winning trades move in your favor pretty quickly, and most hit the fib extension within a few bars.
Welcome Prospectus,
A pivot point is a staight line support/resistance point where price pivots and changes direction. It acts as resistance on the way up and support on the way down.
Look at the monthly timeframe for CAL and you will see the pivot point at $35.25. It is now acting as support but in 2002 it was resistance.
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