CMG Chart Request

I found CMG an interesting stock and I think there are some concepts and lessons that can be learned from it, maybe eve a trade.

I haven't had time to find out what happened or what the catalyst was in CMG, but whatever it was, it was known in advance.

 First a weekly chart, this qualifies as a parabolic move, the lack of pullbacks/corrections through 2012 is disturbing (much like the broader market through the same time period. Any healthy move should see the excesses wrung out with consolidations and pullbacks, when they are absent, it's almost like a stream pressure cooker, something eventually goes wrong pretty big.

 On a daily chart, here's the linear regression channel, CMG popping out of the top side of that channel always looks bullish, it rarely is. A change in character is always something to take note of and when that change is a big increase in volatility, you can't rule out a blow-off move.

 Since 2012, look how linear the uptrend has been, virtually no corrections at all, the break through the upside of the channel itself was a volatile move that should be concerning to CMG longs, unfortunately they just see price percentage gains and tend not to look at what the change in character actally means. If you look close, CMG is VERY similar to the market during the same period moving up, very small, but very consistent days up, note in April how much bigger the daily ATR became, you can see it clearly by looking at the size of the daily candles/range when comparing February/March to April. When volatility increases, it is usually a sign of a top. For example, most of you who have been trading for a while will probably have some vivid memories of this period in the NASDAQ 100.

This is the tech bubble, I've color coded the risk by way of volatility and as you can see, increasing volatility is rarely noticed at the time, it's always "This time is different", but changes and huge increases in volatility are very dangerous, we are living through an increasingly volatile market right now. I'm not saying you shouldn't ride the ride, I'm saying you should be aware of your surroundings and know when it's time to start taking profits and reducing risk.

 On the daily chart (remember divergences flow from the shortest timeframes to the longest if they are strong enough), there's a relative negative divergence right as CMG was breaking out of the linear regression channel. For a divergence to make it to a daily chart, it's already pretty well established. Also note Stochastics, which I use the opposite of everyone else, I use a longer period and while they are embedded, I do not view this as overbought, although it is (there's no level in which you can identify "too overbought"), I view it as strength and have designed trading systems to stay long so long as the longer term Stochastics stay embedded, the first sign of a negative divergence in Stoch. and it's time to close the trade, if you look closely, Stoch. went to a negative divergence right at the very top.

 The 60 min chart shows confirmation in 3C as it makes a series of higher highs with price, then we see the first signs of distribution in a rather weak relative negative divergence, by the time it turned in to a leading negative divergence, that party was over and it was time to be out of CMG, but this should give you some idea of how Wall Street distributes, they sell in to strength, by the time it is leading negative, they are likely already short the stock.

 As the shorter timeframes feed the longer ones, the intensity of the negative divergence can be sen on this 30 min chart, whatever the catalyst was in CMG, Wall Street was moving out of the position, selling in to strength months before.

To short CMG here is to chase it, it may give you some decent gains over the next couple of days, but the risk of a snap back move is too great for me to want to even consider shorting it right now, I want to short it on the snap back move. The 2 min chart which has been in line with the downtrend is just starting to show some short term positive divergences, these are probably the start of what will be a snap back move and with volatility high, I would expect a pretty strong move.

As for potential targets...

 With the break of the 50-day today, shorts are in place, it's a decent time to start looking for that snap back move. The 10-day moving average is a typical area to watch, so the $425 area would offer a better entry with much less risk.

The Trend Channel held the entire move, you can see where the trend broke at the red arrow, the Trend Channel would also suggest a target area somewhere between $425 and $430.

I would let the trade come to you, just make sure to set some price alerts so if it doe, you don't miss the opportunity.