Pending Implosion?


The market is a perverse creature.
It loves to do what is not expected, which
is why I love to learn other methods from the traders on this site. I like to
follow the trend — whether the setup is intraday or swing does not matter.
However, all trends eventually end, and things usually go the other way when the
mass perception heads in one direction.

A good example of this is Taro Pharmaceuticals
(
TARO |
Quote |
Chart |
News |
PowerRating)
.
Last
Friday, near the close, I was talking in the TradersWire
Interactive
trading room (I am not referring to it as the
"
chat" room anymore — thanks, Connie!) about the stock being pretty
extended following the multi-week run it had, and wondering if it could be a
candidate for the Larry Connors Crash, Burn and Profit strategy, published in Connors
On Advanced Trading Strategies.

Many times, when short sellers short over-extended stocks that
have been going up for weeks, they are right but are in too soon, according to
Larry. He determined a good spot to enter, using ADX on the weekly chart. In his
research, he
discovered that often, when stocks reach the stratospheric
reading of 60 or higher on the weekly, then downtick from there, they will often
never see that level again. Once the stock reaches above an ADX of 60 —
(
TARO |
Quote |
Chart |
News |
PowerRating)
on
Friday had a reading of 65 — wait for the first lower ADX reading. If TARO
continues lower tomorrow, it will be a turn-down on the weekly and the ADX,
which stands at 62 today. When these rules are met for the CBP strategy, go
short with a 15% protective stop.

It must be stated that this is a risky strategy and a must to
have a predetermined stop in place.
Many times, these stocks can — and do
— go
higher, and in the event you are wrong, you don’t want to blow your entire
account equity. When this strategy works, however, the gains can be substantial.
Another potential way to take advantage of this strategy and limit risk is to
utilize deep in-the-money puts, as your loss is limited, in the event the stock
moves against you and you avoid having to borrow the stock. TARO will be
interesting to watch in the upcoming days.

Until tomorrow,

Duke

P.S. Not to be outdone by Dave Floyd, thought y’all would enjoy
this little tidbit from this theatre
of the absurd
we call life.