If You Land One On Your Opponent, And He Doesn’t Budge, What Do You Do?

  • April 11, 2003
  • Derrick Hobbs


I want to take you on a walk through the various time frames
of Caterpillar
(
CAT |
Quote |
Chart |
News |
PowerRating). As we take this
leisurely stroll I will be building my case for the following action:

  1. If long CAT, I would be
    considering taking profits and/or raising my stop to lock in gains.

  2. If no position currently, I
    would be looking for short trade opportunities.

That said, let’s look at this
stock from three different views (weekly, daily, intraday). First, let’s look at
the weekly chart. Here I want to point out three items:

  1. We are hitting a large Weekly
    Fibonacci price resistance zone from 53.50-56.77.

  2. Time Symmetry — The last
    rally was 25 weeks, while as of today this rally from the October 12 low is at
    26 weeks.

  3. Price Symmetry — The
    previous rally was 19.68 points from low to high. This rally is currently at
    19.76 points as of today’s high.


 Next, if we drill down to
activity on the daily chart, we have a bearish pattern that has developed around
the weekly symmetry levels mentioned above. That pattern is a Bearish Butterfly
pattern. This pattern is often seen at intermediate market tops. The pattern was
officially complete at 53.45 and is valid up to 56.77. Also note that today’s
(Friday’s) candlestick was a possible reversal candle with a nice tail into our
Fibonacci resistance.

 

Fibonacci and Elliott Wave go
hand in hand. I only use e-wave stuff as a confirming tool and only use it when
my 3 year-old daughter can point out the waves. If there is any complexity to
the wave count…I don’t use waves. Anyway, on the chart below note the following:

  1. From the Feb. 13 low, we have
    5 defined waves. Each wave completed right at critical Fibonacci price levels,
    and Wave 5 is hitting a large cluster of Fibonacci price levels (what I call a
    FibZone).

  2. This 5-Wave count is part of
    a larger wave 3 or C. Whether it’s 3 or C, I don’t really care, because either
    way, an intermediate term sell off is likely around the corner.


Finally, below is the 30 minute
chart. I use this time frame to look for patterns to develop to use as triggers
to go short. Sure enough, on today’s gap up opening 30 minute bar. we ran up and
completed a Bearish Butterfly pattern and sold off the rest of the day. I
shorted this stock based on this smaller time frame pattern.


So, as you can see I can find a
lot of reasons to be short this stock, or at least take profits on long positions, in the short to intermediate term. That is
the time frame I’m concerned about anyway. With symmetry, price resistance, and
bearish patterns on multiple time frames I’m looking for a corrective move to
develop.

Now, what if CAT ignores all of this? Well, my daddy told me once…Derrik, if
you’re in a fight and you take your best swing and land one on you’re opponent
and he doesn’t budge…well son….you need to run. So, “Derrik, if you short CAT,
and it pushes up through all your bearish parameters….well son…you need to
cover.” In fact, that would be a significant sign of strength and I would be
looking for opportunities to go long on lower time frame Fibonacci setups.

Have A Great Weekend!

Derrik
Hobbs