MCP Update

MCP is definitely of interest this morning with a -5.7% move down, BELOW SUPPORT. For this reason I wouldn't rush to judgement on this move, as many times as we see it and know that it happens at least in 80% of reversals we see, it's still never easy to go through and wait through, but the chances are very good it's a head fake move, which is one of our best indicators of an impending reversal.

For newer members the reasons are many, but make sense. MCP may be inexpensive, but it's by no means a small stock that goes unnoticed, that means any longs likely put stops right below support, usually a penny below. Here's a simple illustration and evidence that leans toward this being a head fake move.

 Note that even though MCP had early downside momentum, stops weren't hit until it broke below support at the white arrow where volume jumps as stops are hit, technical traders are very predictable as to where they put stops and if they place them with their broker, Wall St. can see them anyway, they often make a juicy target for several reasons:

1) The volume rebates they earn by creating volume by hitting the stops
2) They can pick up shares on the cheap with no one suspecting a reversal as there has to be a buyer on the other side of the trade so it raises no suspicions
3) It gets shorts to enter, when prices move back up the shorts' covering gives the reversal to the upside an extra boost.

There are more reasons, but those are some of them and why we see these head fake moves so often just before a reversal so I wouldn't be too quick to judge this move in MCP.

 There is a small gap open, but I doubt that had much to do with it and it's about filled now.

 Even though this wasn't a major reversal, the head fake move below support made for a nice 45% move from the head fake lows and a 25% run from before price even broke below support.

 Finally on the subject, MCP looks very much like a base, if you are going to trade in tops or bases, expect volatility, this is where most of the volatility in a stock's cycle can be found, bases and tops. This is the reason I phase in to positions that are in bases or tops and prefer wider stops with fewer shares over tighter stops with more shares.

 The 1 min chart shows a negative divergence toward the end of day yesterday, it's not a large divergence, it didn't develop over much time, and it's within the intraday timeframe.

 The 2 min chart shows it as well, it developed very quickly as if the head fake was going to be run and they knew it yesterday, there isn't a larger period of distribution that would make me think this is a real move to the downside based on distribution.

 Even as early as the 5 min chart where we first start seeing institutional activity, there's nothing negative about this chart and it hasn't responded to today's move.


On a longer 2 hour chart there's a large relative positive divergence that worked in to a leading positive divergence, I just really think it's way too early to make judgements about this move.

If the short term charts show a positive divergence developing quickly, I may even add to MCP, but I always wait for the evidence, even if that means I miss the trade.