IOC Short Candidate Moving Our Way

Many of us already have a profitable short position in IOC, this is a core, long term short. For those who may want a primary trend short position and want some exposure to the Energy Industry Group, IOC has insane profit potential as you can see by my last update which is linked below.

In my last update, IOC Short Set-up on April 28th I explained the trade idea, the short set up, how IOC should behave, what it needed to do to "Come to us" and make it a high probability/low risk short with enormous profit potential.

Please read the last update because EVERYTHING we expected and wanted to see since that update, has happened. We are VERY close to a tactical entry.

If you understand the linked post above, explaining what to look for, then all you need are these few charts to see how well the trade idea is actually shaping up.

 This is the main feature, a Head and Shoulders top, best seen on a 5 day chart so the preceding trend is seen as well. The price pattern was verified by me using the only method other than 3C known to verify a true H&S top which is the lost art of volume analysis.

There are 3 places to short a H&S top that are lower risk/higher probability. The best (if you have patience) is at the top of the head, that's the lowest risk, the maximum profit potential, but can take some time so you must ALWAYS consider Opportunity Cost", in essence, can you make more money somewhere else over that time period and if you have the time and skills to do such.

The second area is at the top of the right shoulder, which is where we are now.

Finally, the last spot... After that most technical traders will short IOC as it breaks below the H&S neckline-the red trendline, this is Technical Analysis' favorite area other than a break below and a failed test of the neckline (now resistance). However Wall St. knows all of this and uses it against traders, they enter short on the break below and add on what appears to be a failed test of resistance and then Wall St. pulls what I call a "Volatility shakeout" and they run price ABOVE the red trendline where most traders have placed their short (buy to cover) stops. It is this shakeout and eventual head fake move that is the last good spot to short a H&S top, just when all the initial shorts are covering their short.

 In the right shoulder we have an ascending triangle, being that most traders don't look at the big picture, they see this bullish consolidation/continuation pattern as a typiccal consolidation after a run to the upside which happened starting December of 2012, traders expect this to breakout to the upside and they will buy that breakout, especially if they haven't looked at a longer term chart and identified the H&S top present.

The first move in this "Crazy Ivan" shakeout is naturally below support of the triangle, making traders think it failed, the second move is to shakeout the other-side at #2 with an expected breakout in the direction expected, continuing the December Rally's uptrend as that is what this price formation has represented for over a century. Traders buying this breakout are the target as we want to sell short to them, they are in essence buying the shares we are selling short and smart money as well because they need something that creates demand to absorb the large positions they put on. When the pattern breaks down from the left shoulder. the losses from the retail longs who bought the breakout will fuel selling and that will create more downside momentum so the neckline is easily broken. Retail buyers are there to provide demand for large short positions and to create downside momentum as they reluctantly take their losses.

 The 3C chart verifies the set up in the ascending (bullish) triangle, there's a 3C negative divergence creating the first shakeout below the triangle and then there's accumulation (white) there sending IOC up and above the breakout of the top of the triangle. The leading negative divergence just confirms smart money has been selling/shorting in to price strength and demand- this is the purpose of all of this and 3C makes it crystal clear as it happens.

Now looking at a VERY short term 1 min chart, it suggests IOC will make a run higher or at least starts to suggest that. We need the longer charts to go positive as well, maybe out to 5 mins or so and then we get a higher high that creates more retail buying and that is where we are looking for stronger distribution to sell short for ourselves, the trade has come to us on our terms, it is low risk, it has high profit potential and the timing is excellent, a "High Probability/Lower Risk Trade".

Like a Wolf Pack, we have been stalking IOC.

 The same 1 min chart shows the first breakout was nothing but distribution (institutional selling) in to higher prices, the current positive divergence is to send IOC to a new high, this is another small clue about the overall market.

This is the Bull Trap, the ascending trianglee that is within the H&S top's  right shoulder and a move to a higher high here is our trade, the yellow drawings show where I expect the head fake move-again telling us something about the broad market.

Today's candlestick w/ yesterday's creates a star reversal candlestick pair, we just so happen to need an upside reversal to short in to. The higher volume today makes the candlestick reversal much more reliable.

Patience and keep this one on your radar!