TRADES

Tonight I'm featuring MSPD, I've liked this short trade for a long time, but it threw a lot of people for a loop.

Above, MSPD was progressing well into a nice Head and Shoulders Top, it even broke down in early August sucking shorts into the trade. Then it fooled everyone by forming a bear flag which is a bearish continuation pattern, meaning it is expected to consolidate upwards and then breakdown hard again. Because the bear flag continued up through the neckline resistance that had been broken earlier in August, many shorts would have stayed in the trade, even though that resistance point should have not been crossed, but the bear flag kept them in the trade.

A closer look at the bear flag. Typically most consolidation patterns (this one is bearish) have 5 points of contact before they break in the anticipated direction. Each of the blue arrows represents a point of contact within the flag. The Blue box is the area in which the flag was expected to break down. This trade was heavily manipulated and it followed the market up and broke out to the upside, burning many shorts (white box). This gave market makers and smart money excellent positioning on an otherwise nearly flawless H&S top. As the flag progressed, weakness could be seen as the breakout turned out to be a false upside breakout and price shortly re-entered the bear flag. The 3 days up after that (small bodied candles) was very reminiscent of a bearish candlestick pattern called a "Falling 3 Methods". The breakdown below the bear flag on heavy volume is the confirmation of the false breakout and manipulated pattern. It now looks like a decent short set-up.

Above is a 15-min 3C chart inside the bear flag showing the false breakout in the white box. Note the negative divergence in 3C confirming there was short selling  into the false breakout, not buying. The pink arrow now shows a leading negative divergence which is very bearish.

First we look at the stops. The red horizontal line would be my first choice. According to our risk management though, you'd have to take on fewer shares as the risk is greater. The second choice would be the white line. This is not a bad alternative either, just with the volatility in the markets I'd hate to lose a good trade due to volatility.

The entry could be at Market price at Market open. You could also wait for a new intraday lo below today's low to enter on a limit trade but do not place a limit trade with your broker, only place the trade when you are ready to execute. You don't want to show the market maker your hand. Or you could enter part of the position, maybe half at market or limit and add either on any bounce or on a breakdown through the neckline as that is your ultimate confirmation. You have less risk, but less profit as well.

Any way you look at it, this trade now looks ready for a big slide down. I thought it would be an excellent example of how the market works and how emotions -FEAR and HOPE work in this trade. Hope kept shorts in the bull flag even as it broke through the neckline resistance. Fear of the large breakout kept people from getting excellent positioning as price showed it to be a false breakout.  For Longs Hope was brought into play on the breakout of the bear flag, Hope also probably kept many longs in the trade as it re-entered the bear flag, thinking this was a simple pullback. The volume today shows capitulation by longs.

NEW TRADES WILL BE UP MOMENTARILY 

Some of these trades are ready to go, some require some patience. I highly suggest you put in alerts via whatever system you use. TeleChart tabbed at the top of the site has an excellent alert system, for price, news and more.