The last posting features the the visual screening process that we demoed on August 3rd, in which we built out the watch list for sweet spot candidates. Here’s what we saw that day when we look at closer look (4:14)
Taking this a step further, we’ve now got two more weeks of price action that can help us falsify these trends. Thus far, these featured stocks started at stage one just like WYNN did a month ago. The featured samples show how the stages can develop in very much the same fashion.
AET – Weekly Support $111.37
Trading near weekly support, AET had already been in this range for the last couple months. If we were to consider long positions time it closer to the lower end of the range. We may have gone long from around $117, managing the position on a 60 min chart to take the price up to the daily resistance.
It is particularly fortunate that prices had exceeded the resistance level at $119.69, as an opportunity to scale out a bit, especially considering how there is still considerable uncertainty about the future direction. Last week prices had continued further, just shy of breaking the recent high, however prices have flat lined & we still have to see whether prices can continue higher.
From the perspective of this DY/WK chart, AET appears to be at ‘stage 3’, where the short term buy signal has rolled through to the daily chart, however we’ve seen this before & there can be a repeat of the choppy range since June. However, if we are well positioned, having some exposure to a positive surprise may be relatively cheap, using this setup & taking some profit. Additional considerations:
- Daily support currently showing $116.13
- Prices could pull back to test (stage 4)
- Prices go break
- Prices could skip stage 4 and breakout higher
CVX – Weekly Support $99.42
We saw CVX break quite sharply to weekly support, and there was a relatively quick buy signal at around $100. The risk/reward has some favorable asymmetry and we did see prices start higher:
Prices touch $102, up 2% from a potential long entry point. If we didn’t take some off, the whole position would have to go back to even, and slightly underwater. Between Stage 1 & stage 2 (before prices have reached Daily resistance), it important to get that first bit of profit realized. That may have seen it easier to hold the position through, while it retested the $99.72 low point.
At some point though, we have see downward price action as an indication that we’re wrong. It’s possible we could have closed the position for a small profit & watched for prices to put in a higher low or double bottom.
There was a bit of an entry around $101.80, which would have been tougher to take if you hadn’t had a winning trade in this stock first. Today, prices are trading at Daily Resistance, and we shall see if prices can hold up & get through (stage 2)
OKE – Weekly Support $42.86
Here we have a stock that was strong all year, up to mid way through July (past Brexit dip). We saw prices round the bottom quickly, and trade into Daily resistance right away. We’re currently between Stage 3 & stage 4 – similar to AET, except we can see fewer intermediate roadblocks up toward the July high at $49.09
In a long position like this, starting from $44, we could see profit taking at daily resistance of 4.5%, and then managed the position on a loose leash e.g 120 min.
Without a meaningful pullback, this stock provided a relatively short window of opportunity, but also one that seems to have the ability to go on a while longer. If we’re an observer/on the side lines, we could wait for a pullback to daily support & a short term buy signal
I hope you’ve stuck with this series & taken in some ideas clarifying the advantages of the sweet spot. The final posts will be about how to avoid seeing the trade setup when it’s not really there *although, if we misread the price action, the sweet spot begins with the idea of minimal risk
With the summer coming to an end, it’s back to school for students & that means traders are also returning from vacation. That makes this the perfect time to start incorporating these methods into your trading process.
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