ERX Follow Up

Here's the bigger picture and the immediate long trade view.

 Longer term on a daily chart, ERX was an upside "Channel Buster", while looking bullish, this volatile change in character often signals the exact opposite and ERX did fall straight to the lower channel after the Channel Buster to the upside. ERX then broke the lower channel drawing in the shorts, this is where the concept of a volatility bounce/shakeout of the shorts comes in to play, just like with AAPL's H&S, so for the near term I want to be long ERX for the shakeout move to the upside and back in to the channel and then I want to start looking for a high probability, low risk and much better priced short entry as ERX should ultimately fall.


 This 60 min 3C chart of ERX shows the big picture as ERX was negative by the time it made the upside channel buster which was more confirmation of a concept we are already well aware of, the leading negative divergence also suggests ERX has a lot of downside longer term, but only after the original shorts are shaken out and/or longs are drawn in.

 For the current long position in place which is to play the volatility bounce, we have a 15 min positive divergence backing up the concept and ERX has responded well so far, but this morning it is looking a little too parabolic for my taste without a pullback and I'll look to add ERX shares on a pullback.

Intraday the 3 min chart is at a negative divergence on the parabolic move, not a very nasty one, but enough to suggest that taking this gift and adding at a lower price for the rest of the bounce has good probabilities.