We haven't looked at PCLN in a while. I believe this was the last time PCLN was shorted as part of the primary trend "core" short positions (the ones that are still in effect and hedged).
This position is still up 10% and hedged with leveraged longs. There's also a July $655 Call that is down about 10% (this is not the hedge to the equity short).
This is the basic set up in which the trade came to us. The small descending wedge is a bullish price pattern, but as you'll see below, there was distribution in to that price pattern. From observing market action, with a negative divergence already in place, the most obvious play would be a breakout from the wedge that retail would chase and smart money could use retail's buying to sell short in to, that's the same place we were selling short PCLN. Back in June I had to make a decision as to whether to close out the shorts and try to trade around them or to hedge them; since the market becomes more unpredictable in a situation like this and with the prospect of an EU Black Swan event arising any day, I decided to hedge the shorts rather than what I would normally do which would be to cover them and look to re-enter at a better price. I simply didn't want to take a chance in trying to get too fancy in trading around the market at a time like this and I'm still happy with that decision.
PCLN is above a resistance area, much like the rest of the market and in an area with a high short squeeze potential. Should a short squeeze come in PCLN, hopefully my calls will do well, but ultimately I'll be looking for an area to add to the core PCLN equity short.
The 30 min chart shows the bullish descending wedge formation area at the red box, the breakout from that area in the yellow box and a 3C negative divergence through that entire area on an important timeframe. Around June we had a positive divergence sending PCLN higher until it ran in to some distribution and another weaker positive divergence recently.
The 60 min chart went from uptrend confirmation (green arrow) to a nasty negative divergence (distribution) and has remained in a leading negative position, so from a longer view point, the highest probability primary trending trade is on the short side.
Near term the 5 min chart shows a positive divergence at the start of June and rough confirmation on the move up. This is certainly not overwhelmingly positive, it is really barely in line, thus the primary bearish position still holds water.
Recently-like most of the market (due to very high market correlation), we have a leading negative trend on the 2 min chart suggesting again, a pullback.
The 3 min chart is also showing the same.
My expectation is for a pullback in PCLN followed by the resumption of the market's sub-intermediate uptrend. I would think PCLN would see a short squeeze with the market, but as mentioned, both the market and PCLN are in short squeeze territory now, so a simple pullback may offer several different trades 1) So long as there are short term positive divergences in to a pullback there's a long trade that is probably best played with options, hopefully a short squeeze will make that trade a killer. Eventually we should see distribution in to a short squeeze and that's where I want to look for opportunities to short in to strength as the primary downtrend re-asserts itself. I prefer not to use leverage on what I would consider to be a primary/trending trade, I see no need for it.
Again, it's just patience, choosing the trade/trades you want and letting them come to you.
No comments:
Post a Comment