Prior to Friday, MDR had carved out two inside bars as highlighted on the daily chart above. Notice the price and volume contraction on Thursday - NR7. Also note the rounded top which generally signals too much supply. Every time buyers try to push price higher, they are met by an over supply from sellers.On the 15 minute chart below, we see that MDR gapped lower on the open and tested support on the OR. The second bar was inside on declining volume - an invitation to short. All of the MAs converged over price. MA convergence combined with a narrow trading range foreshadows a big move.
CIEN breached support in the morning and came back for a retest. The retest formed a perfect bearish flag - another invitation to short. Notice how price cannot close above the down sloping 20 EMA on the retest.
8 comments:
hi jamie,
Can you explain the phenomenon which causes MA to act as barriers to price. Is it simply the nature of reversion to the mean, or is it caused by traders consciously anticipating and expecting the same thing (price will pivot at the MA line) and acting in a coincidental effort to move price. Is there any significance to the 20EMA as opposed to the others? thanks. gary
Hey Gary,
I don't have the answer to the "why", but I know from observation that when stocks don't form a proper base prior to moving towards the downsloping 20 ema, they usually fail to recapture it.
The most significant MAs or most watched are the 50 and 200. But for short-term moves, the 20 is also closely watched by traders.
Tons of nice set-ups on Friday ...I've been waiting for today. Lots of stocks had become very extended over the past month with RSI and stoch divergences.
Unfortunately, I fell victim to my recent experience with trend-free Fridays (especially expiration Fridays) and failed to stick to basics and take full advantage of what should have been a very good day. I was stuck in the past instead of observing what was happening. Old lesson - slow learner.
Caught SNDK for a short. A great expiration day trade that I was watching (but not closely enough to catch) was to go long GOOG OCT 650 puts when GOOG broke out of its tight PM range. Coulda had a quick 5-bagger. Doh.
Hey Ferde,
You're right , in a normal cycle, there are only about 2-3 really big days per month and we should be ready for them. However, more often than not, we get caught off guard.
I'll have to look into options one of these days and see if I can incorporate them into my trading. That GOOG play you just described sounds very interesting.
Jamie,
sndk pmcs cree- 3 semi's on the Breifing WL and wild they were along with hon mmm cat. We'll seee what happens Mon am.
Jamie,
Any chance to short DRYS with low risk entry on Fri?
YR
YR,
Break of 4th bar low. However, DRYS would not have been in my top 10 for shorting on Friday because it did not trade outside of the previous day range until late in the session.
Thanks Jamie.
Back on CIEN, what is your entry price? Did you go short on break of bear flag?
YR
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