T Trade Short

I've put up a lot of C&D trades and we've done well with them. As I have said, in my past experience, I DO NOT recall a time when the C&D trades fired off vigorously that we didn't see that as a precursor to the end of a bull move in the market.

The reason is simple-the crowd or as I like to call them and thus named this member's website -"The sheep of Wall Street" is usually a reverse indicator of the market. When everyone jumps on board the "Buy the dip" bandwagon there's not a lot of money to be made on the other side of the trade (the institutional side). After a fall like 2008, many investors still have that drastic carnage fresh in their mind and perhaps still having a significant impact on their portfolio. That being said, it takes a lot of confidence for them to re-enter the market and this buy the dip melt-up that I talk about in the videos last night is just the remedy for gun shy investors. When they re-enter the market, they don't want to chase the high flyers, they don't want to buy a stock that's already moved 50% so they look (as we all enjoy) for th bargain basement deals. If I'm aware of this, Wall Street is aware of this all the more. Wall Street accumulates these positions as they have a feel for new accounts and what not re-entering the market. So the C&D trades rally.

In any case, I could be wrong, I don't mind being wrong-that's what risk management is for. However if I'm not wrong on this, then the market dynamics will change very fast and many of you may want some higher quality trades to ride out a potential trend-as well as trades for my options members. In that light, I've been providing ideas today and this is the next, "T" short.

 Here's the base in T in orange and this looks to be a pattern I haven't seen too much recently, a Broadening Top. note, ALL Head and Shoulders tops start as Broadening tops. In general, before a Broadening top will break down, there should be 5 points of contact between price and support and resistance, here we have at least 6 and the last bounce off support should fail to reach the top trendline (resistance) as we see here. The measuring implications for the target are derived from measuring the distance between the widest part of the top (resistance minus support) and then deducting that number from support when it breaks. Note the heavy volume on the recent break as well.

 Here's the new version of 3C showing the positive divergence at the base and now 2 negative divergences. MACD has also fallen apart.

 Here is MoneyStream's daily chart with similar negative divergences.

 The Trend Channel and a bit of a wide stop as there's almost always volatility around this area and you want some room for the trade to work, take fewer shares to increase you stop and still maintain prudent risk management.

 For those using free charting systems, this is a long forgotten indicator that works well, it works on the concept of divergences like 3C. It's called ROC or Rate of Change. In some instances it can't be applied to price, so take a 1 day moving average of price-make it invisible and add ROC to that. This is an excellent alternative indicator.

Here we see a triangle-it' obvious so the chances of being run are high-unless the market actually does break down. You can see resistance in the gap zone in white, I would have a stop at least above that.

For this trade, I'm using a limit order (mental) below the triangle and a stop around $28.85.

If you have questions, feel free to email me as always.