TSO Trade Set Up

TSO is partly an interesting potential trade set up that can come to us or you can chose to deal with it in a different manner or not at all and TSO is also a great example of several concepts, some in play right now.

 This is where I like to start with new analysis, a 5-day chart going way back to get a feel for the character of the asset, any trading patterns. Right away I notice this can be a very volatile stock, much closer to a parabolic, tight top than most and it sees fear and falls faster than it rises which makes it an interesting short at the tight time.

I've laid out the 4 cycles of a trend on the chart: "Stage 1" base/accumulation, "A" Head fake move below the base right before a move to "Stage 2" Mark-up or the trending phase" then "b" the increase in price's ROC to the upside just before entering "Stage 3" top/distribution" and that is followed by "Stage 4" decline or bear market.

We seem to be in stage 3 right now, but that doesn't mean there's not a trade there.

Also note the volume in a healthy market as it rises with price and the volume in a F_E_D, liquidity pumped environment, volume doesn't rise with price. In any normal market that's not overly manipulated by Central planning, you should always pay attention to what volume does in a price trend, what it has done since 2009 is not healthy, it's not a stock I'd trade long under normal conditions, but the F_E_D put the Bernanke Put in place so it didn't matter, but it gives you an idea of how sick these assets are one that put is pulled which is what is happening now.

 As far as the current stage 3 top, this is the concepts we have and use with H&S tops. It looks tight and small because we are still using a 5-day chart, but you should be able to make out the H&S top and neckline.

I only short a H&S top at 3 places: The top of the head if I get lucky, the top of the right shoulder or if I miss that, I wait for the H&S to break below the neckline like Technical Analysis books have been saying for over a century and where 95% of technical traders will short a H&S top as the break below the neckline represents confirmation of the H&S top and that it has broken.

However, Wall Street knows these rules better than most technical traders and they know what technical traders will do when faced with just about any price pattern, in this case, they'll short the break of the neckline with a stop just above the neckline or they'll wait for the first bounce after the break of the neckline, then when they think that the bounce has failed at the resistance of the neckline, they'll short it there and place a stop above the neckline. Wall St. knows this all too well, this is EXACTLY why this is the one place I WILL NOT short a H&S top.

The third place I'll short this pattern is in this area, once the initial shorts have all been shaken out as their stops were hit when price crossed back above the neckline. We didn't use to see this before 2000 very much because technical analysis wasn't that popular until the Internet really took off and people started managing their own accounts. 

On a side note, I saw the "Wolf of Wall St. " finally, that's the old days before the internet when brokers conducted transactions and long before online discount brokers. That's when you might pay $80 commission for a trade and brokers were NOTHING more than salesman, few had any idea what the stock market really was, they got their license, they got a job, they were handed a list of which stocks the firm was pushing that day and they jumped on the phone and called all their clients to sell that stock and make their commission, they didn't know (for the most part) anything about the market.

Thus the internet changed things and patterns like this on a H&S started showing up.

This is a 60 min chart of TSO, you see what I see, a large symmetrical triangle, assumed by TA to breakout to the upside because of the preceding trend.

I might make any trade here (long) contingent on a head fake move below the triangle first, verification of a head fake move and the reversal process of the head fake move in place.  That means I need price alerts on both sides of the triangle.

If I miss it, there's another bus.

This is the daily 3C chart, the distribution in to the H&S is clear, this is a top, it's just not totally formed in my opinion.

I have some concerns about how long the trade will last, I imagine it's worthwhile and likely would make a new high if it gets going.

Right now we are positive at the 10 min and recently so as the triangle moves towards a mature apex and a breakout or breakdown soon.

The intraday charts are also seeing a lot of recent improvement , 3 min

And 5 min.

So I'll look for a downside head fake, if it comes, then verification that it's still a long and an entry. If not, no worries, there's another bus coming.

The head fake below shakes out longs, traps bears, creates upside momentum, allows us to enter at a discount, allows us much less risk and better timing as well as additional confirmation that the move is strong (accumulation in to a head fake move), so set alerts if you are interested, if not,  there's still a lot to learn from studying this chart and maybe watching it going forward.