This is one of my favorite trade set-ups right now for a bunch of reasons. I don't consider this a reason to trade an issue, but the F_E_D and specifically Yellen did come out and say Biotechs were over0valued in congressional testimony along with Social Media stocks, you might know the turn of phrase I'm thinking about at this moment... In any case, this is still not a reason to enter a trade.
In the "Week Ahead" post, I said that I expected the market to move lower, "other than some minor noise", perhaps a gap fill, well this trade set-up would benefit from some minor noise and it looks like it will get it. In fact many of the trade set ups I have flagged today could and look like they'll benefit from some minor noise and I do mean that exactly that, "Minor Noise".
The charts will explain the rest,
but the specific asset I'd likely look at would be BIS long, "UltraShort NASDAQ Biotechnology".
This 5-day chart shows one of the concepts I pay attention to, that's changes in character of a stock. On a 5-dday chart everything is more compressed and looks to be happening faster than it really is, but at point 4, IBB (NASDAQ Biotechs) is virtually vertical, these are "seemingly" bullish moves that are red flags that a change in trend is to follow and just after, IBB saw a major correction in excess of 20% on huge volume, but much more than that happened.
The trend also turned lateral, this is a very typical stage/cycle trend from stage 2 mark up to stage 3 top, the next stage is 4, decline.
Here's the daily chart.
The 100-day moving average seems to be important lately, for those less aggressive you may want to consider an entry in that area, although there are often shakeouts of new shorts after a clear support area is broken.
This is what I was referring to when I said a lot more happened at the top area, this is Worden's Money Stream which just plummeted, it looks like a lot of capital exited all at once. I checked BIB the Ultralong and it looks exactly the same and I checked BIS, the Ultrashort and it is the exact inverse with a huge leading move up so there is multiple asset confirmation of this huge distribution event.
My Trend Channel shows where the trend broke, even if I use a 9-day channel to capture more of the trend, it still has broken. The Trend Channel is unique among channels because it takes the stock's trading character and adjusts to it over time which allows you to have a stop that isn't arbitrary but based in something major changing in the stock. I use a multiple standard deviation of what "normal" character of the stock is so any break of the channel
(note the first trend line in Q2 of 2013 was not a stop out as price did not close below the highest point of the lower channel) is an exceptional change in the character of the stock and as I often say,
changes in character lead to changes in trend".
I don't think the 4 hour 3C chart needs much explanation, it's in line with what Money Stream was showing in the same area.
The 15 minute chart is where this gets really interesting. The 3C trend is what you'd expect considering the 4 hour chart and a distribution phase, but this one looks special when you take a closer look.
This is the same 15 min chart zoomed in a bit, you can see in line movement to the far left, positive divergences at the white arrows/price lows. However the most recent leading negative divegrence is what really interests me as far as timing which is why we use multiple timeframe analysis as well as multiple asset confirmation (even though BIS and BIB will move a specific amount relative to IBB, the volume is not the same, which is why we sometimes won't get confirmation-Gold and GDX has been very difficult to get confirmation from lately). This last move up has been sold from the moment it started moving, it wasn't the process that distribution normally is, but more of en event or a very strong signal.
Although I'd have no problem taking a BIS long here, the 1 min chart shows a day and a half positive divegrence, judging by the size of the previous one and the following move, I'm guessing this bounces toward $260 so that gives us a better entry, less risk and better timing. I'll be setting alerts for this one as this really looks attractive.
No comments:
Post a Comment