BEAV Short Trade Idea

BEAV is actually one of the core short positions, this is one that I should have let go of some if not all of the position to re-establish the position later as it was at an 18+% profit (with no leverage) over the course of about 4 months. We knew there was a move to the upside coming which for most positions came at the head fake/false break down move that established the June 4th lows from which we rallied.

In any case, because BEAV is already at full position size, I didn't add any today when I posted this "BEAV Short Idea", but for those who might be looking to add to or initiate some equity shorts rather than ETFs, BEAV looks to be in a decent place and if it didn't violate my risk management rules, which I try to follow just to stay in good habit, I would have added today or if I didn't have a position open already I would have at least started a position there. Remember when using phased entries, make your risk management plans including adding to a position at better prices BEFORE you ever enter the trade. I like phasing in to trades, especially longer term positions, but the risk management plan must allow for and reflect that plan before you enter, this is the difference between a plan to purposefully enter in sections and the bad habit of "Dollar cost averaging", which is a Wall Street propaganda tool used to not only keep clients in bad trades, but to take what could be a client taking their money put and convincing them to add more to a bad position. Remember, "Dollar cost averaging" is a Wall Street propaganda ploy that serves Wall Street, for you in most cases it is throwing good money after bad; this is VERY different from planning ahead of time to phase in to a trade.

As for the BEAV charts I promised...

 BEAV 5-day chart with Linear Regression, note the down side channel buster and the kiss of the channel; that kiss in yellow is where we first went short BEAV. Now there's a resistance zone just above at the white trend line; this is why I prefer to phase in to these positions, you have coverage in case the market falls apart, but you also have room to add if you get a head fake move above resistance so you can add and get a better average cost with lower risk.

 A daily chart showing where we went short the first time in the red box, the large volume is short term capitulation and profits should have been taken there allowing you to re-enter the position under better circumstances later.

 This is how the original trade and head fakes worked out. First remember that we see head fake moves before approximately 80% of the reversals. From left to right, first there was a trend down (small, but in scale with the symmetrical triangle that developed just under support.  The Symmetrical triangle has no inherent bull/bear bias and depends entirely on the preceding trend which for this scale was down. Technical traders expect the triangle to consolidate laterally and then break to the downside, starting the next leg down, however we already knew there were negative divergences and a good chance for a head fake so instead of chasing the break down, we simply waited for the triangle to see a head fake upside breakout instead. Most traders will wait for confirmation before entering so it's not likely many went short on the triangle, but when a price pattern like this fails, Technical Analysis teaches traders to reverse their position meaning they would have gone long on the unexpected upside breakout from the triangle in to the yellow box (again the area we went short. We did several things here, first we didn't chase the trade, but rather let it come to us; we got a better price entry for our short with less risk and we didn't have any draw-down or opportunity cost as we expected the trade to o something, it did it and allowed us the entry we wanted.

Since this was a head fake move designed to suck longs in to what they saw as a failed bearish triangle, it opened up demand for the stock which was easily sold in to by larger traders, then when price fell back below the original triangle the longs who bought the failed pattern and upside breakout were now at a loss, their selling is what gives the stock downside momentum which creates more selling (both from longs under-water and shorts entering).

From there we had a pretty fast, deep move down and formed another symmetrical triangle which traders expect to break in the direction of the preceding trend which was once again down.  According to Technical Analysis dogma, the trade should have followed the path of red arrows; we had a small break below the apex where shorts would have entered on confirmation and then price moved up, this time trapping shorts at a loss and their covering created upside momentum as well as creating supply when they first shorted which smart money could have picked up wirhout anyone suspecting accumulation as they simply see it as someone taking the other side of the trade and they assume smart money is selling rather than buying.

From there we had a trend up (yellow arrow) and after some recent volatility we are sitting JUST below resistance which makes for a high probability breakout above resistance, only to catch longs in another bull trap and provide smart money with enough demand to sell or sell short in to as both transactions come across the tape as sales. If we get that move, that's where we want to add and fill out the position so long as the 3C charts confirm a head fake move which I'm sure they will based on what they look like now.

 On a 60 min chart, you can even see that longs are being set up already with a bullish ascending triangle consolidation/continuation pattern, traders believe the bullish price pattern will break out to the upside since it's a continuation pattern, continuing the preceding move up, with a break above resistance it makes it that much more attractive for them and creates more demand for larger positions to sell in to without pushing price against them. The large red volume at resistance of what became an ascending triangle looks to be churning as the candlestick has an upper wick meaning it tested and rejected higher prices, this is indicative of churning or smart money handing off shares to dumb money.

 The 60 min Bollinger Bands show the price pattern and that it is mature and neat the apex as the bands tighten suggesting a highly directional move-I'd bet it' a head fake/failed breakout, but it must be convincing to get longs to take the bait. The green arrows are what Technical traders expect based on T.A. dogma, the yellow arrow represents a head fake move which is the reality of what we see day in and day out and on all timeframes in all asset classes.

 3C 60 min chart-this is a strong timeframe with serious implications, if you follow it from left to right at point "A" we have a negative divergence sending price lower and in to the symmetrical triangle that formed at point 'b'. Price didn't do what T.A. says it should as technical traders are so predictable it is easy to manipulate them. At point "C" we have the unexpected breakout of the triangle to the upside, we knew it was a head fake as 3C was moving to new leading negative lows, the yellow box is where we entered.

Again, we saw the trade setting up, we waited for the move and confirmed it to be a false breakout and used the price strength to short in to, lowering our risk, giving us a great entry and a timely one as well as increasing our probabilities of a successful trade. "From failed moves come fast moves" and from the failed breakout (yellow) we saw a fast reversal to the downside making our position almost instantly profitable. At point "D" we saw accumulation and this was the place to take profits and look for the next trade.

As the move went up we saw distribution at the red arrow and point "E", we have higher price highs at point "F", but a leading negative 60 min divergence which is a strong signal, heavy distribution making this an ideal area to start shorting BEAV.

 30 min chart shows distribution in to the late October area, the same place we saw it in the market and most risk assets, then the positive divergence that started the bounce from 11/16 that we see market wide, after initial confirmation of the trend (green arrow) as prices moved higher and created long demand we see heavy distribution in to higher prices as we have a leading negative divergence in the red box.

 15 min chart shows a small negative to the left in to highs, then the positive divergence that we saw market wide on 11/16 sending BEAV higher with most equities, then distribution in to price strength and demand, the most recent distribution has been in the form of a leading negative area (red box) with added leading negative divergence over the last several days.

 Finally I'll stop at the 10 min chart because I thin the larger bearish picture is painted. The 10 min shows distribution in to the same area seen on the chart above, we have a small head fake move in yellow above resistance and a leading negative divergence through the entire area at the orange arrow.

 Now intraday timeframes-1 min shows a strong leading negative divergence in to higher prices and a small head fake move, I'd hope to see a more convincing move up to trap more bulls, creating a sharper move to the downside. Note 3C is making new leading negative lows on this chart even as price is making new highs on the chart, THAT IS THE POWER OF 3C, THE POWER TO CONTRADICT PRICE AND REVEAL THE UNDERLYING ACTION FROM SMART MONEY.


The 5 min chart shows the positive relative divergence to the left at the white arrow and then the stronger leading positive divergence at the lows in price, this is heavy accumulation (for the timeframe) in to price lows, they see confirmation at the green arrow and then when they are high enough, smart money starts the distribution process which can include not only selling, but going short as well. The white area around the 5th is the positive divergence we saw suddenly in the market last Tuesday during the late afternoon which was enough to send the IWM above its range and allowed all of the averages to move above their respective 50-day moving averages, again influencing longs to buy, however since then as we make these new highs for the leg in most assets, we have leading negative divergences or distribution in to the price highs. Retail is buying and smart money is selling to them at great prices and steady demand.

This is why I like BEAV here, I'd prefer a 50% short position now and wait to see if we get a higher breakout to add the last 50%.