Second Entries And Pattern Development
It would nice if you didn’t
have to wait for pattern development in order for a trade to work out, or if
every trade worked out on the first attempt.
In the real world though, quite often it is the
second attempt, or an entry off a more robust pattern that ultimately delivers
the goods.
In today’s trade, with so many stocks gapping
lower I tried to focus my attention on either stocks that would reverse with the
market (i.e., the KLA-C’s of the world) or stocks that had been completely
damaged, but looked to reverse at key price supports as evidenced by EMAs, Fibonacci
retracement levels, and/or prior pivot lows and price supports. One issue that
was talked about within the chat (extensively) was Macromedia
(
MACR |
Quote |
Chart |
News |
PowerRating).
I started looking at the stock almost immediately
today as it headed up the ‘beheaded’ list in today’s session, but it wasn’t
until late morning that things got truly interesting for reversal calls, as
that’s when the stock tested the bottom of a zone that was approximately 1 pt.
wide between 17.33 to 18.40. This technical area of support had two different
Fibonacci measurements as well as a key pivot low from August.
Right around the ‘noon balloon’, MACR tested
(within .06) the August levels and the bottom of the zone. I ‘put it out’ in the
chat that the current price (trading slightly higher at 17.75 or so) could be
the makings of a price reversal as a test had been made, and the stock was also
breaking an intraday trendline. MACR proceeded somewhat higher over the next
couple bars, but considering the magnitude of the move during the session, it
wasn’t exactly something to write home about. During this time ongoing interest
in the stock within our TM chatroom prompted me to tell folks in the room that
personally I’d keep a tight leash on this one, as a double bottom or 123 could
play itself out intraday, before a potential move higher out of the zone.
Sure enough, the stock proved me right as it
pushed through the tight stop loss level I mentioned, turning the play into a
relatively small loss, and the cost of doing business with this type of trade.
That’s not the end of the story though, because
by virtue of price action stopping one out with a small loss, MACR was now close
to setting itself up as a possible double bottom or some version of the 123
reversal formation.
Now there’s something to write home about. Two
bars after being potentially stopped out (had you kept the tight leash on MACR),
the issue formed a double 3 point pivot low, just through the bare minimum
required level of 50%. If you took the second setup out of the reversal pattern,
you can send your next letter home via first class, as Macromedia has traded up
more than a point and change since the classic entry presented itself once
again.