Capturing Explosive Short Term Moves
- November 19, 2019
- / Jeff Cooper No Ads
- / By Jeff Cooper
In this piece, I’m going to show two methods I use to capture explosive moves.
The first is with the Principle of Squares.
The second is with pattern analysis.
As Sir John Templeton, one of the most successful investors ever, said, “The fluctuation of share prices is roughly proportional to the square root of the price.”
Below we track the recent rip in ROKU and where it may be headed now according to the Principle of Squares.
The second way I look to capture explosive short term moves is with pattern recognition. At the end of the day, as traders, we are all in the pattern recognition business, analyzing patterns of accumulation and distribution.
Below, we walk through why subscribers took EIDX long last week prior to Monday’s 9 point surge.
Last week, we told subscribers that ROKU was on the radar for Pin Action to fill the 161 open gap from its September 9 Key Reversal Day.
The key to ROKU’s stunning comeback following its November 7 Earnings Gap was ROKU reclaiming the 141 region where the gap occurred.
An hourly ROKU below shows the ensuing momentum once ROKU recovered its earnings event.
The result was a runaway move from Wednesday into Friday that came close to the 161 gap from September 10.
Yesterday that gap was closed and we alerted subscribers to a possible reversal in ROKU.
Why?
ROKU struck a low of 98 on September 27.
Straight across and opposite 98 on the Square of 9 is 165.
165 is 360 + 180 degrees up from 98.
Remarkably, notice that 141 is the number just above 98.
141 is I cycle or 1 square of 360 degrees up from 98.
141 is where the downside gap occurred.
Once ROKU reclaimed 141 last week, it telegraphed higher… and in a big way.
It was immediately magnetized all the way to prior highs.
The canary for the ‘crash’ UP and Pin Action to 160 + was reclaiming the 141 region.
However, as the above Square of 9 shows, 165 marks resistance and ROKU tailed off to close right on an hourly trendline.
After the bell, ROKU was trading down another 6 to 153.50, undercutting its 20 hour moving average.
This morning, it is bouncing off a test of the 20 hour, but 160ish presents resistance, and another break of the 20 hour suggests a further pullback.
90 degrees down from 165 is 153.
Another decrement of 90 degrees down is 141.
The Square of 9 does a good job of pinpointing where buying panics and selling panics culminate.
Last week subscribers took biotech EIDX long at 43.43.
I reckoned that EIDX was carving out the Handle of a Cup & Handle pattern.
While EIDX ‘came out,' pivoted out of the handle initially on November 8, it pulled back again to test its 50 day line.
However, it turned up again last Thursday and the second mouse got the cheese.
This is often the case: what I call Stutter Step setups often play out.
Markets don’t exist to accommodate.
The second move often is the money bar.
Following last Thursday’s pivot higher, EIDX carved out what I call a TNT signal.
This is a Thrust, Noise, Thrust pattern.
In other words, after an upthrust, a stock will often see a Pause Day.
The next day typically sees acceleration.
In this case, EIDX exploded from a Gap & Go on Monday and members locked in half their gain while protecting the second piece with a trailing stop in keeping with our Hit & Run Swing Method.
Combining pattern analysis with the Principle of Squares is a powerful method.
In the case of EIDX, the projection off the 33 low projects a push to 60, which is 360 degrees up from 33.
99.999% of traders have never even seen the Square of 9... let alone understand its potential.
Do you dare to be different?
99.999% of traders have never even seen the Square of 9... let alone understand its potential.
Do you dare to be different?