LEN Follow Up

LEN is short trade idea from July 8th and another excellent example of Wall Street taking advantage of technical traders who play by rules that are in some cases nearly a century old. Wall Street as always quickly adapts, technical traders keep doing what they've done for decades and they always seem to come out on the losing side of the proposition.


If you entered the trade on that day, then you are at a profit and moving in the right direction.

Here was the setup...

 LEN has been trending down in  a channel, but there have been at least 6 occasions when LEN has broken the channel in a head-fake shakeout. I viewed this last break above the channel as a severe head fake, but a head fake nonetheless.

 Here 3C hourly (this is as far back as the hourly history will go) shows an upside and downside headfake, both with conflictng 3C divergences that sent LEN back into the channel.

 Here's our most recent break and the day after the white box is when I posted the trade idea. The technical consolidation above the channel is a bullish ascending wedge, a bullish continuation pattern for technical traders, so when it broke out at the white box what do you think technical traders did? The bought the breakout, this is important because we see this kind of head fake precede more reversals then otherwise. It's also important because Wall Street can accumulate a large short position right out in plain sight, usually they are quiet about it, but the buy side demand from the breakout allows Wall Street to sell-short as the other side of the trade.

 Here's the negative 3C divergence on the breakout and when I posted the first entry and I gave two additional entry points, the second on a break below the triangle and the third is below, yet to trigger.

 The 3rd entry point for more conservative traders is on a break back into the channel. Likely we'll see some support at that channel, but it shouldn't last too long.

For those who want a tight stop on the trade, take a look at a 50 bar sma on a 30 min chart. Otherwise, I'm looking at the bigger picture in LEN.

Again the lesson here is the bullish continuation pattern and the failed breakout from that pattern with 3C distribution. Technical traders were likely to buy the bullish pattern, Wall Street was likely to set them up in a bull trap of sorts. You see the common theme emerging?