Wednesday, November 19, 2008

Inverse Cup & Handle - Agnico-Eagle Mines Limited (USA) (Public, NYSE:AEM)

In early trade, AEM and ABX, my two gold watch list stocks rose to the top of the % gainers list on a weaker dollar. I was waiting for AEM to retrace or form some NRIBs at the base of resistance (blue line). The dollar ended up being a fade and gold pulled back in. However, I noticed that AEM was halted pending news. Briefing.com reported that AEM announced a $252 mln private placement; or 8 mln stock dilution.

I tried to short when it resumed trading at noon but price went right through my limit price. So I waited and eventually it carved out a handle at the base of the round $ number. Notice how it never took out the previous bar high all the way down. I exited after a 3 pt. gain, but you could stayed in the trade textbook style till EOD.

In general the measured move of a C&H pattern is 100% from the low/high of the cup to the base of the handle, but AEM's cup was unusually deep, so the target wasn't achieved. Still a sweet trade at 62%.

I added the 5 day SMA (orange line) to my charts as per Brian Shannon at Alpha Trends. I'm only adding it my 15 minute timeframe because it's a static number. For 15 min. it works out to 130 periods over a 5 day trading week or 32.5 trading hours. On the 5 min. use 390 and 1 min. 1950.

RIMM is the only WL stock trading above the 5 day SMA.

As you can see from the Nasdaq E-mini futures chart below, price rose towards the 5 day SMA on early strength and fell back down. A good indicator to help monitor the strength of the markets as well as focus list stocks. I shorted the NQ for part of that morning swoon, but exited long before the afternoon chop and didn't bother with the close.

OPEX - options expiration is the third Friday of every month, but usually around midday on the preceding Wednesday, things start to get messy. Best to stick with story stocks when this phenomenon takes over.

2 comments:

Tyler said...

Jamie,

I am glad to see you got into AEM. Unfortunately, I took a long lunch and missed it. Nice work!

Also, I like Brian Shannon's use of the 5 DMA. It clearly shows trend direction.

Thanks again for the advice about using a higher timeframe. My head was clear this morning and I was able to focus and trade a lot better.

Thanks,
Tyler

Jamie said...

Hey Tyler, I read your blog. Good job!