IBM's (NYSE 🙂 operating results were in line, but its stock fell as the company reported its third quarter in a row and failed to provide guidance – the same lack of information that scared investors in late 2018, leaving stocks on the verge of falling abyss. from a bear market.
With the release of the profits, the shares fell 6.5% on October 20. Is this a buying dip or the start of a bigger sale? We bet on the latter. This is why.
The post-win plunge pushed the price down to the support of a top's neckline. It took buyers and sellers to battle it out over the next few days to achieve a bona fide breakthrough. What gives us confidence in the integrity of the breakout is its volume – the highest on a down day since the same 2018 sell-off noted above.
However, there was an earlier day of higher volume, in an emerging market. It was on October 8, when the stock peaked after finding resistance near the June 8 high.
Oct. 8 turned out to be a shooting star – when sellers overcame buyers, they pushed the price all the way back to almost open. The bigger they are, the harder they fall, turning this excellent green volume day – the highest since October 2017, into a bearish signal.
The 200 DMA pushing prices down towards the bottom eruption adds to the bearish picture.
Note, Thursday's trading yielded a hammer – the reverse of a shooting star, as buyers push back sellers and therefore took an optimistic stance – as the price hit the lowest level of the range since April 21st. Some traders who found the 20% rise that followed could hope for another round, boosting demand.
This dynamic, the surging hammer on support since April, can trigger a return movement to re-test the integrity of the summit as buyers push against sellers. We bet on the sellers, assuming the downward breakout will have encouraged short sellers and discouraged buyers.
Trading Strategies
Conservative merchants would wait for evidence of distribution, with a decisive day of sale manifesting with at least one long, red candle falling from the neckline.
Moderate traders would be happy if price returned to the neckline for better access, if not confirmation.
Aggressive traders could now sell, after drawing up a coherent trading plan to which they would commit.
Here's an example:
Trade Sample
Admission: $ 116
SL: $ 120
Risk: $ 4
Goal: $ 100
Reward: $ 16
RRR: 1: 4
Author's Note: This is an example only. If you are too lazy to read or don't understand the actual message, DO NOT act. You don't act; you gamble. Your timing, account and temperament will affect the success of this trade and your overall trading. Adapt the plan to your needs. If you don't know how to do that, then DO NOT act. Good trade!
