SCTY Trade Set-Up

SCTY is a longer term short position we have been interested in and even opened with a little room to add to. Since SCTY hasn't done much lately, although I look at it often on my watchlist, I haven't posted much on it lately as there have been few actionable areas to consider so I'll have to include a broader view of the trade idea (more charts than usual).

 Here's the current SCTY position already opened...

SCTY with 300 shares at an opening price of $71.27, a current price of 69.17 (as of this capture), down -.72 on the day (as of the capture) with a position value of $20,750.97 as well as the $629.03 gain in the position and +2.94% gain.

There's a tiny bit of room left for me to add to this position at this size, but not much.

As for the reason I like SCTY as a position trade (core short) are illustrated in the charts below.

Weekly chart... Keep in mind that through my watchlists, there are a lot of H&S-type pattern stocks, even the IWM is very similar and after years of looking at them I'll tell you that they rarely look like the textbook in real life which is why volume confirmation of H&S tops and even more so, H&S inverse bottoms is so crucial. A lot of traders were fooled by a H&S top in the market around 2010 which was NOT volume confirmed and caused a lot of pain.

 This is the daily 3C chart, large negative divergences are found at all the right places, the left shoulder, the head and the right shoulder.

 This is a daily chart showing the head and right shoulder which as you can see, has done virtually nothing through this market bounce.

The price-pattern implied downside target would be approx. in the very low teens. This isn't a guarantee, but it's the best we have for price-pattern based targets.

 I like confirmation in as many important timeframes as I can get, this is a very important timeframe for me, the 4 hour chart and it too is leading negative and at all the right places. In other words it looks like SCTY has been sitting in this large price pattern for almost a year just seeing distribution/short selling.

 The 2 hour chart which is more than sufficient for me to enter a primary trend position (primary trend as in Dow Theory which would be the equivalent of a bear or bull market),  again showing leading negative divergences at all the right places.

 The 30 min chart to give an intermediate trend view (In Dow theory there are 3 trends, Primary, Intermediate and short, however most people acknowledge "Sub-Intermediate as a bridge between short and Intermediate). For example, while there are divisions among Dow Theorists as to what constitutes what trend, I'd consider GLD's 2009-2011 trend a primary uptrend and the 2011 high through 2013 an Intermediate downtrend which is exactly what we forecast when we called the Gold trend reversal in 2011.

Here the right shoulder is in a rather flat range, remember this is where traders often get complacent and bored, but it's also where we most often see the heaviest underlying activity which is appropriate as smart money are doing their thing and virtually no one is paying attention.

 The 10 min chart shows the accumulation for the construction / rally to create the right shoulder and then a distribution trend in to the highs and lateral trade. In other words, SCTY is at my second favorite point to short a H&S top with only 1 more following this, but still a ways off.

It looks to me as if SCTY is just about ready to break down, I'd expect it to do so with the broad market (that's a lot of right shoulders in larger H&S tops all breaking down or breaking to new lower lows for the right shoulder.

On an intraday basis , 3 min chart, SCTY did see some accumulation around the base-building period for the broad market where I'd say about 75% of stocks, Averages and industry groups all built a base at the same time, virtually identical from 8/1 through 8/8 with lift off on 8/11.

This is a different divegrence, it's a horrible relative performer for the move off the base and has seen distribution t each of the pivot highs.

However...Just as I've been expecting a head fake move to end the reversal process of the cycle started on 8/1 and move us from stage 3 top to stage 4 decline, it looks like SCTY wants to do the same.

 This 3 min chart leading positive developed late yesterday and in to today, just like the broad market averages.

I'm not sure what the upside target would be, but I'd think the near term downtrend trendline would be an obvious target to spark some breakout demand. The 10, 22 and 50-day moving averages are also all clumped together between $70 and $71.30 which may illicit some technical interest as well.

The sym. triangle drawn in above is considered by Technical traders to be a consolidation/continuation pattern and the preceding trend was down so they'll expect a move below the triangle which just occurred as I'm typing, this can give SCTY a little boost by creating a bear trap, causing shorts to cover and getting its upside move started.

I like SCTY in this general area for a longer term position, but if we can get a better, more timely entry with less risk, why not?

The bottom line is I'd be setting some price alerts on the upside if you are interested in SCTY short or adding to an existing position, I gave a target or two, you may find some others you like. Also keep an eye on the broad market as this will likely turn at the same time as the broad market.