When Ambiguity Begets Clarity
The agile stock trader is on a continuous search
for setups. The best setups stem from the convergence of several patterns which
are in agreement with one another. However, if you’re good at the interpretation
of unfolding price action, you can deal with setups that aren’t quite as neatly
packaged.
This chart of Aspen
(
AZPN |
Quote |
Chart |
News |
PowerRating) is an interesting example of how an ambiguous
pattern can provide viable opportunities.
Even though AZPN is dropping to potential support off its 50-day
moving average, five-week-range lows, and the bottom of its uptrending channel,
it is, at the same time, forming a very clear head-and-shoulders top.
I would be watching this stock very closely because if it breaks
all these support factors at 40, it will also be breaking the neckline of the
head and shoulders pattern. At that point the ambiguity gives rise to
clarity. If we see an acceleration to the downside, many traders would see an attractive short play in the works. I like this setup better than one where we see a bounce because an
acceleration to the downside would potentially be swift and pronounced. This
is due to several factors, including:
-
Often, weakness in the overall market will strongly influence individual stocks.
-
The failure of three bullish patterns could trigger a panic.
-
The head and shoulders pattern is one of the more
conspicuous ones I’ve seen in a while; it would be noticed by chart
watchers.
It will be interesting to watch this unfold over the next few
days.
Profitable trading,