Tuesday, March 11, 2014

Anatomy of a climactic setup, with clues for entries to short near the top.

"So this is Christmas" John Lennon. 

This pattern and setup will make you feel like that if you are able to use this lesson and short near the top or sell all your longs before the collapse, the next time you see a parabolic, climactic move.

Read and memorize the chart below because it is the main point of the lesson and the heart of trend analysis.

Below the daily and 60 minute charts of TWTR. On the last up move it had five green days, of note the fifth day closed with a hanging man (I think is called) very far away from is rising 20 moving average, the massive volume signaling that everybody that wanted to be long was long, fluid moves like the one TWTR Had during this five day period don't form many bases on the smaller time frames leaving areas of very little support if price for some reason begins to cascade lower with trapped longs, get my point?
I'm getting ahead here, if you read the first chart, where do you short a stock with such a powerful move higher? YOU DON'T. 
At least not until the 60 minute chart forms either a double top or at a minimum forms a lower high stopping the powerful uptrend (HS. Head and Shoulders) and placing your stop above the previous high in case the bulls have one more push higher to continue the uptrend.

Remember you are trying to short an up trending stock on all its time frames (and a very powerful one at that) one of MY biggest rule in trading is to never short against a normal up trend and viceversa but the exception in this case is that the daily chart got parabolic and climactic (THE ONLY TIME I allow my self to short because the odds are on my side based on this analysis) The momentum sucked in everybody and the odds are high of a fast and hard pullback.

On the TWTR chart the 60 minute chart has a lower high LH. H & S Pattern BUT was still in an uptrend, the daily chart was giving great odds to go short but whomever entered short due to that H&S On 60 minute chart was speculating more than shorting with confirmation.

Next day it had a lower opening gap confirming the bearish pattern the 60 minute chart was signaling, remember the area of zero support underneath? Remember the massive volume telling you that everyone and their dogs were long?
Remember the separation of price from its R20MA? How about gravity? 
When a stock has no buyers and only sellers trying to get out all at once price discovery begins until it finds support, and it did on TWTR 15$ points lower two days later as shown on the chart below. 

Below is the daily and 60 minute chart of PLUG 3/10/14 

Do you see the similarities on the daily charts of TWTR And PLUG?

The question is always the same, where does one enters a short trade inside a giant up move? Can this or that stock I'm looking at keep moving up forever? 
For the most part even stocks like AAPL on its run to 700$ in 2012 Had its pullbacks occasionally to shake some weak hands and continue moving higher, that said up trending moves are very different to parabolic moves because normal uptrend moves are usually more predictable by measuring the earlier price waves sort of a 100% move higher and 40% drop and on and on until it forms a double top or lower high and possibly begin to trend lower, but on parabolic moves one side of the trade is totally trapped or being trapped as the up move is happening and the other side, longs in this case are in total control of price. 

So I read Chalan's TA Blog and he says that for the larger time frames to move lower the smaller ones need to enter into a  downtrend first.

I'll use the 15 minute chart for the faster signal, the daily chart was so extended that if the 15 minute lost its uptrend first, the 60 minute chart was going to turn lower second turning the daily candle red.
Sort of collapsing a giant kicking his bad knee.

The 15 minute chart was in an uptrend so no shorting anywhere if you read the first chart or the second explanation of the 60 minute chart needing a 2X top or H&S Pattern FIRST. 
After the open it had a decent consolidation the first two hours, the bulls pushed price higher the rest of the day but the up move got large and some selling followed enough to form a HL Pivot (purple arrow) followed by a weak bounce sending price back to test that HLP. But that pivot held price from falling more because its 60 minute chart was simply having a controlled pullback.
The 60 minute chart remained in an uptrend, no shorts other than scalps there, and the daily got more extended to the upside.

Next day the higher opening gap got sold turning the 60 minute chart into a 2X top. FIRST short warning signal.
Seen through the 15 minute chart the first pullback found dip buyers (normal in such a powerful uptrend) bouncing price higher, forming  another HLP But the bounce that followed was weak forming a lower higher pivot and H&S Pattern putting the uptrend on this faster TF In question (because the 60 minute chart had a 2X top in place, reads lost the uptrend) and that was the biggest signal professionals got that the trend was about to possibly change, both TFs flashing the move lower, the second signal was the HLP. On the 15 minute chart wasn't able to hold price (second bottom purple arrow) anymore because the 60 2X top bla, bla, bla.
Once price broke the HLP. On the 60 minute chart (purple arrow)
Remember about the no support area because the fluid move to the upside explanation earlier? Gravity? Everyone being long? PLUG Daily's chart being climactic; and on and on?

That is basically what happened to PLUG On this day.

What is going to happen to plug going forward? Your guess is as good as mine but here are two charts to consider:

This is a very simple strategy to capitalize immensely from the unsuspecting late longs, it works to catch falling daggers as well, just turn your monitor upside down.

Edit 9/28/14:

And then there was GPRO:

The weekly chart is very extended in need of a pullback, the daily chart had a hanging man candle two days ago similar to the second chart on this lesson, or the daily chart of TWTR The only difference is the volume on GPRO is not as climactic visually. 

SO why GPRO Didn't collapse? Not all parabolic moves collapse immediately or at all, but lets look inside the 60 minute chart for clues.

The simple answer is that the little selling there was didn't trigger any swing short signals as it did on the 15 And 60 minute charts in the examples above.

1- The hourly chart established a new uptrend. 2- Points to what looked like an exhaustion gap on the daily chart during the first hour. 3- The selling formed the biggest red candle top of the whole 60 minute chart. 4- It had no follow through confirmation to the downside or continuation lower, on the next bar it formed a bottoming hammer, three candles later completing a HL Pivot (marked purple) the uptrend remained, basically the pullback was to pivot higher. 5- Once bulls on the sidelines realized sellers were weak the went in and sent price higher closing it near the top, forming a 2X Top and the hanging man on its daily chart putting the uptrend in question. 6- Next day it opened with a lower gap that again had no follow through lower holding above the last HL Pivot, again weak sellers proved no match for the buying that followed forming another HL Pivot that sent price back to the top. 7- Closing above the 2X Top re establishing the uptrend. 8- A weak pullback followed by more buying and  NHs.

Remember as long as the 60 minute chart remains in an uptrend the daily chart will keep moving higher, as was posted on the very first chart of the lesson.

Here is the 15 minute chart, as long as this time frame remains in an uptrend the 60 and daily charts will keep moving higher.

Read the first chart in the lesson, as soon as you see two lower highs and two lower lows confirmed on the 15 minute chart the 60 minute chart will be ready to enter its own downtrend and the daily chart will follow lower.

I'll post that chart on the following days.

I hope you learned something that can protect you from sharks in the future and it can turn you into one. 

Do you want me to analyze a trade that went very bad for you with some pointers to avoid in the future? Send me an Email. I'll post it on the blog: Only caveat English is my second language: Digitalair@hotmail.com

Part II On climax and capitulation trades: 


Feel free to leave a comment. 

I can teach you to master the markets, I'm for hire if you're tired of losing $$$. 4000$ USD Gets you a committed mentor.

All charts are source www.FreeStockCharts.com 

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