PCLN Update

Yesterday the 20th I posted two pieces on PCLN, a heads up to put it on your radar which essentially said...

"PCLN's longer term or core equity short charts are fine, I wouldn't move those at all as trend trades, but short term you'll see a little "W" base between the 17th and today, that has some accumulation in intermediate/short term charts. I would consider playing it as a long, but I'd prefer a call position, what I mean to say is as a quick swing trade a long in PCLN equity is probably worthwhile, I think with the leverage of a call, definitely worthwhile. I'll have some charts up soon, again this isn't anything that threatens the Core short, that's pretty much cemented, but it does look like a nice little trade especially with some leverage. Right now I'm more looking at timing than anything else so I'm definitely interested."

And then a follow up with charts...

Basically I like this as a short term bounce-type position with leverage meaning calls, as I mentioned yesterday the trade idea looks solid, but what I'm looking for (especially using options) is timing.

Today I think PCLN did a LOT more to move closer to that timing and early next week (Monday perhaps), I'll be looking at an entry , but once again as a reminder, the PCLN core short trend position will NOT be moved, this is a longer term trend trade for good reasons and I'm leaving it as such.

The set up is pretty basic, it's based on Wall Street using technical analysis against traders as they have been doing since the Internet and online brokers and the mass migration to technical analysis as a way of trading the market on your own without a broker's assistance. The concepts are a century old, in some case several centuries old and barely changed so it's pretty easy to know what a technical trader will do when faced with a technical concept and all Wall Street has to do is turn the tables on them as they know even better what these traders will do as they have the complete book of orders and know where they are already positioned to make moves, THIS IS WHY I NEVER PUT IN AN ORDER UNLESS IM READY TO EXECUTE...Would you play poker with me and show me your cards? If so, give me a call.

 On the daily chart, this is a concept II've talked about a lot, at "A" we have a clear trend, a clear character to the trend and predictability, at "B" something changes and changes in character lead to changes in trends which is exactly what happened at "C" as PCLN's price goes nearly parabolic. I've shown many times in the past how price goes parabolic like this or has a distinct ROC (rate of change) usually to the upside and especially at changes in stages like from stage 1 base to stage 2 breakout or mark up and then like we see above, from stage 2 mark-up to stage 3 distribution or top and then there's usually a volatility change or roc change from stage 3 to stage 4 but to the downside with the first break often being one of the larger.

I often say, "Price is deceiving" because at "C", what looks like an even stronger trend in PCLN more times than not is actually the end of that trend, look at historical tops and look at the transition area from mark-up or trending up to the top, you'll see price shoot up nearly parabolic right in to the top.

 Taking a closer look at the daily, here's where Technical analysis comes in, there's VERY defined support and resistance, this area is ripe for a head fake move  because it's easy to know how traders will react at such areas, a breakout above the clearly defined resistance and they'll chase price or buy the break out which they call confirmation, but it's typically just chasing and often puts you in a tight spot.

If price drops below the well defined support, they'll sell short. Lets assume price will drop below support because that's what I think will happen and have been expecting, traders will come in and sell PCLN short on a break of support and that's typically where we will see the head fake move as institutional money accumulates below support because it's easy to do. Remember , their positions are huge compared to ours and they must be careful entering them, we are not going to move PCLN against us with a 100 share lot, but when you are trading 10's of thousands of shares or more, it's easy to do.

What the break below support gives institutional money is supply, sellers who are stopped out are providing supply on the cheap, short sellers who are again, selling, are providing supply on the cheap making it much easier to accumulate a large position (by our standards, not by institutional money standards) without moving price against them.

Next, to make the trade work all they need to do is work the bid/ask or put a little money to work and push price back above the support area that has become resistance, most technical traders who are short will have their stops right above what they perceive as resistance (former or current support), that creates a short squeeze. 

On the short squeeze the next "DEFINED level of resistance around the  $1317 and don't think the actual resistance of $1316.99 isn't intentional as the buy limit orders work VERY nice with the whole number which the human mind gravitates toward anyway, $1317, why do you think retailers always use $.99 instead of $1.00? It's not a big difference, but the human mind perceives it as a big difference as we are inclined to gravitate toward whole numbers.

Once a short squeeze triggers the buy to cover orders it easily propels across the $1317 level where buy orders are lined up or will be. The "buy to cover" orders create demand, they are in fact buyers driving price higher, when the $1317 level is crossed the longs step in and that creates even more demand moving prices higher and what did institutional money have to do other than know how retail technical traders would react? Not much, they didn't have to buy so much PCLN that it moved on its own leaving them a lot less profit. THIS HAPPENS EVERY DAY.

 This 60 min chart shows the "Tweezer bottom" which is a bullish candlestick reversal that acts as support, this is what I was pointing out yesterday as a likely area for price to cross below and initiate the trade, that's also where I'd likely (as long as I have 3C confirmation), enter a call or long position although for this position I prefer a call because it doesn't have a large accumulation area for a long duration move.

I doubt it's coincidence we ended the day right at that level.

As for the trend or core PCLN short positions, this trade doesn't threaten them at all and that's why I say I wouldn't close any of the core PCLN equity shorts. The 4 hour chart shows MASSIVE distribution which is right where we'd expect the top just from the nature of price action alone as mentioned above.

There was a range that was pretty clear, it was broken and traders will buy that breakout and it was distributed to weak hands or retail longs buying the breakout.

I could post several other long term charts showing the same heavy distribution and why I would not close a trend or core short, but I think that's enough to get the point across.

The 10 min chart has more detail than the longer charts which have less noise and more trend, but the 10 min chart does show us distribution at the highs and VERY recent accumulation of the area around support (white arrow).

This is what I was seeing Thursday and why I said to put PCLN on your radar as a TRADE, but was still waiting for the right timing which means in my vernacular, "Waiting for the head fake move or the trap".

The intraday 1 min chart shows PCLN was distributed on the gap open higher, but as it drifted lower toward support from 3/14, note the positive divegrence. This is why I think we get a head fake move to the downside first, then a break higher and why I want to enter a call position (long) on the head fake move as buying a call in to a break below support as PCLN is moving down while 3C is confirming institutional money accumulating that break gives me the best premium on the call option, it also gives me the best risk profile.

So... that's what we're waiting for and if you saw the Market Update/Leading Indicators. today, that's what looks probable for early in the week. Why not make some money on a trade that either comes to us on out terms or we just skip it?