Why I was short ISIS today. The importance of Pivots

KITE follows the same set-up, but in this post I am just going to go over why I had $ISIS on watch for today.

Here is what $ISIS hourly chart looked like after the close on 3/24/15

Notice the importance of this $68 level.

And 3/24 intraday chart zooming in a bit more

Notice this area is being defended end of day with a tightening range.  I had a good feeling if it broke 3/24's low there was some value in taking a short.

Here is how it played out today.

Firstly, wanted to congratulate my buddy Shyam Patel (theyoungtrader.com) for jumping in this trade with me and making a couple bucks.

1) Stock opens green, on a very weak bounce, not a lot of buyers here.  we take a short 68.25 on a green to red pre-empt.  Stock goes red and quickly flushes.  I cover some
2) Stock briefly bear-flags then pulls an ORB.
3) Stock tries to bounce, can't get over the 9ema and bear flags again.
       -I took the rest of my shares of at 65.47 after this bear flag break.
4) Stock bear flags again, this time with a much tighter range, I re-short at 65.20 with a stop right above the 9ema.
5) Another bear flag.
6) Finally around 1PM it finally bottomed, in the 62s, I will show on the next pic why this level held and why I took the rest of my shares off in this area.
But late day, we get another bear flag that breaks and makes new lows.

So in just this one stock we have 6 times we could have entered this stock.

Here is why i made the covers that I did and why each area was important.

Note-  Each white line represents a Pivot Point or an area of support from the hourly chart.

BUYING A STOCK ON SUPPORT

A few days ago I posted on twitter that I bought $SCTY for a "dead cat bounce" play.  I bought some shares on March 16th.

Here is what the daily looked like:

As you can see the stock had been selling off recently in a nice and steady downtrend.  On March 16th 2015 it finally came to support on the daily chart.  When I noticed where it was located on the daily chart, I started to pay close attention to the intraday chart.

Here is what the intrday chart looked like that day.

Upon looking at this chart I noticed a few things.
1)  Stock found support right on cue from this level on the daily chart.
2)  We now have a higher low.

This appeared to be a bottoming formation in my eyes so I took a position at 47.12 with a stop right under the recent low #2.

As we can see 3) the stock broke out of this bottoming formation late day with a significant volume increase the last 10 minutes of the trading day.  I sold 1/2 for a 55 cent profit at resistance on the intraday chart and held the rest for a swing trade for a continuation from support.

Heres what the stock did over the next few days

The stock ran over the next few days right into the next area of resistance.  This is where I decided to sell the rest of my position.

That was a simple trade that netted $2.50 overall while only risking 20 some cents.  The exact type of trade we want with a nice risk reward.

A picture tells 1000 words.

Part 1.  The Run-up phase

Looking at this chart, I am scratching my head at how I could have possibly lost money on this stock.  This is before I started using 60 min charts.  Go ahead, look at the daily chart or 5 min chart of $GENE, I bet it doesn't look any where as clean as this does.  This 60 min chart is the cleanest chart I have ever seen

I will go into detail of how this chart looks so clean to me.  

Stock is dead.  One random day it gets some volume and makes a run.  It runs right out of the gate and runs into resistance.  It then pauses and consolidates for an hour or so and then breaks the high.  Its off to the races to the next area of resistance on the daily chart.  Almost to the penny.  See chart below to confirm.  Shorts step in and end the run.  Stock pulls all the way back to the previous resistance, which we know becomes new support.  Stock forms a double bottom and makes a 2nd run.  This time its a slow and steady run up to near the previous high.  

Moving Forward 

The 2nd run is made to the previous high.  This is only the 2nd tap at highs so it is sold off.   This is why the previous high is always the first target.  After, stock has an orderly pullback from Feb 5-9 to form a flag pattern.  It then breaks this flag and slowly creeps towards the highs.  Feb 12th the stock makes its 3rd tap on what we call a flat top or triple tap breakout.

Below is chart from the Feb 12th Breakout 

  

Stock runs right out of the gate.  (Tough to catch)  Stock then has an orderly pullback close to support.  Runs up to the highs, makes a higher low, then breaks out of a flat top.  Next is a tight flag pattern, once it breaks the flag you can put a stop right under the 9ema.  And its off to the races.  Stock then forms another flag right on the 9ema (white line).  Stock makes a huge run before going parabolic and eventually breaksdown.  The most important thing to note is, these intraday patterns worked because we were above resistance.  This makes the likely-hood much likelier and much more powerful.  I'm sure this stock has made similar patterns on previous days, but without being in the clear of major resistance on the previous days, the patterns didn't work.  This day, it cleared it and moved clean.  

Watch-List 3/16/15

THE GREATEST LESSON I HAVE LEARNED

Solars seemed to be hot and CSIQ had a nice run up recently, so I figured this would be a good swing stock.  I bought on a intra-day bottoming pattern and just started baby-sitting it.  The next day it ran and made a new hourly high, I figured this was it, but it quickly was rejected at resistance.  This was also only a 2 tapper.  The next day it did the same thing, ran up and was immediately rejected within 5 mins.  I knew the breakout wasn’t coming that day.  

Feb 12th, the stock gapped up above the highs. I knew it was the day.  

Stock runs immediately out of the gate and then starts to base out, to form what we know as an ORB.  I then took a position as a day trade on the 4th candle at 28.07 stop under the 9ema.  Stock runs to highs, pulls back, and then its off to the races.  I sold all of my day trading shares at 28.93 from 28.07 and ½ of my swing trade at that price from 26.87.  

The point I’m making is this:  On days 1 and 2 the stock ran and was immediately rejected at resistance, there were too many sellers there.  On day 3 when the stock finally ran, it gapped and cleared all these sellers out of the way.  This is what made the intra-day ORB set up power and valid, it lined up on multiple time frames.  I knew there was a high probability it was going to work and it did.

PART 2

Szaman posted CSIQ on watch for a 20MA bounce for March 11th.  I checked out all of the time frames to see what it looked best on and the 15 min chart was the best look.  As expected stock runs out of the gate.  (Horizontal lines represent resistance from previous days)

Here is how I managed this trade.  

The point with this lesson, is stock lined up on multiple time frames, which gives us the edge.  Even if  a stock makes a pattern on a 5 minute chart, it doesn’t mean anything if it doesn’t line up properly on the bigger picture.  What I have learned more than anything is to do your homework at night and look for these opportunities.  There is no edge if a stock flags or ORBs right into resistance from other days.  Always soom out and look at the bigger picture.