How To Read Charts Using the Square Of 9 Wheel
Tuesday was a trend day in the markets and a nice day in many stocks.
So we're going to walk though some stocks/setups that we've been playing and have had on our radar for the last few sessions.
On Friday morning we sent an alert, Trading Notes: Holy Grail On the Table where we highlighted our old friend CF's pullback to its 20 day line.
The note offered, “CF was a long idea from last night… a Holy Grail setup (a pullback in a strong trending name to its rising 20 day line). It's gapping up this morning.
We went on to say that we could have anticipated the pop in the stock in Thursday night's report but used ‘trade through entry' instead.
As it happens, CF gapped up big league on Friday without us on board, but our preopening note stated to buy the first intraday pullback.
If you anticipate and get long before ‘confirmation' sometimes it works, sometimes it doesn't.
This is why I often take pilot positions.
In the case of CF, we didn't initiate a pilot on Thursday.
Be that as it may from the first pullback on Friday into gap window in the low 33's, CF has exploded over 10% to a high of 37.13 on Tuesday.
Now it's one thing to capitalize on a setup, it's another to know when to book a profit. Exiting positions is an art form unto itself.
That is why my swing methodology dictates Scaling & Trailing. In other words, I almost always scale out of a piece once a position becomes nicely profitable, bringing the stop on the balance up to breakeven.
Then, as the stock ideally continues higher (or lower in the case of a short) I raise a trailing stop on the 2nd piece.
Typically I like to let the market take me out of the second piece, but often will use technicals to sell the 2nd piece when the stock stands on its tiptoes. In other words, when the ducks are quacking, I like to feed them.
It's a fine line between following the trend and feeding the ducks.
While luck is nice, from my perspective, my 30 years of tape reading has cultivated a well of intuition versus in-to-wishing.
That's what subscribers are looking for and that's what they are entitled to.
Trading is a smorgasbord of art and science.
Here's where my magic Square of 9 Wheel turns the art of exiting into the science of geometry.
Follow me on this.
CF set a low of 20.77 on August 4, 2016. That day was a Spike Volume Bottom (SVB) as it was a large range flush out on huge volume.
That doesn't translate to immediate gratification just because we can spot a signal reversal bar.
Stocks like to form a base. Big players want to accumulate before they run a stock.
CF exploded above it's 50 day line on November 9 leaving an Expansion Pivot buy signal (the largest move in 10 days over its 50 day moving average).
In so doing, CF closed with authority above 25 which ties to 90 degrees up from the 21 low.
The next 90 degree decrement higher on the Square of 9 Wheel gives 31 (180 degrees up from low).
CF respected this level consolidating with its 20 day line acting as support.
The next 90 degrees decrement higher ties to 37.
Following a 1 2 3 Pullback to its 20 day m.a. at 32 on Thursday (1/19), (as noted above), CF rocketed to 37 yesterday.
A full 360 degree revolution up from the 21 low ties to 43.
At the same time, 50% of the range from the 70.32 high on the week of 7/13/15 to the 20.77 low on the week of 8/1/16 (on the 1 year cycle anniversary) ties to 45/46.
Note how 43 ties to the upper rail of a parallel channel .
Interestingly, the 1st week of February aligns/vibrates off 21 and is 90 degrees square 37. The presumption is CF will extend to 43 into early February or, more likely, find resistance and pullback from early February.
This is how we put the pieces together to follow the line of least resistance and measure the trend.
If you can't measure the market, you can't manage risk.
Next, let's take a look at ACIA which set up long late last week.
See original note and chart on ACIA here.
Drilling down to the hourlies shows how Tuesday's gap up triggered a Rule of 4 Buy signal on the hourlies.
ACIA cleared 65 with conviction on a closing basis yesterday, triggering a Trap Door (Bear Trap) in the process by stabbing up through a one month shelf traced out in December.
Additionally, clearing the large range outside down day from January 10 triggered a Reversal of a Reversal buy signal.
65 ties to 90 degrees up from low; consequently, the next 90 degree decrement higher at 73 is on the table.
Whether we like it or not, we're all in the pattern recognition business.
Stocks fundamentals don't explain their day-to-day and week-to-week volatility and trends.
If you think about it, earnings for the most part are simply a rationalization for stock movement.
Unless you're talking about a stock that can be taken over, earnings don't underpin price action.
For example, IBM and AAPL aren't going to be acquired, so unless their earnings are returned to the investor, what do they have to do with the price of the stock?
Wall Street can't tell you that the Law of Vibration defines stock action.
There is a big disconnect between cause and effect in the markets.
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