|
This week I want to review a recent Wave 5 Buy trade on Aspreva Pharmaceuticals Corp. (ASPV:NASD). This trade has a number of interesting points for discussion.
Initially let’s cast our minds back to mid-August, when we were in the thick of the sub-prime turmoil. Well turmoil for anyone but a ‘buy and hold’ investor or one holding short positions that is! The Russell 2000 (RUT:CBOE) had recently shown divergence between lower lows and the RSI - as shown in Chart 1 below.
Chart 1 – RUT RSI Divergence
click chart for more detail
Any time we start to see divergence occurring during a move down on an Index like the RUT is a great time to be looking for Wave 5 Buy trades. The idea is to find individual stocks with a Wave 5 Buy that displays similar RSI divergence.
Chart 2 has a good example of a Wave 5 Buy with RSI divergence (point 1.) that also has a number of other factors in its favour.
Point 2. highlights the fact that the stock never actually managed to close below the Wave 3 low. Breaks of lows often bring in new shorts to the market that require a buy to be closed - adding to buying pressure if a strong up move is made.
Next point 3. shows the test of support that came to rest on the recently broken trend line. Broken trend line tests often offer safe entry levels!
Chart 2 – ASPV W5 Buy
click chart for more detail
Also of interest is the Daily Trend Filter changing to up as the trend line break occurred, showing that the stock had returned to a technical uptrend on a daily swing chart.
Lastly, a longer-term setting of 200 periods has been used for the Bollinger Bands to help highlight when a stock is in the lower portion of its longer-term price history.
As we move through the chart, we see a good pyramid opportunity – to add to our position – as the next trend line is broken. There are a number of ways to go about this, but the safest would be to enter on stop using contingent orders once ASPV traded back into the price gap - shown at Point 4.
Chart 3 – ASPV Pyramid Opportunity
click chart for more detail
Once again there are numerous ways to manage this trade from here, especially depending on the instruments and strategies used. The simplest method would be to take at least part profits once the Range Projector target was touched in late September and run a trailing stop to protect further gains.
In summary, it can be very beneficial to tailor your trading approaches to the overall market action and to use simple divergence and trend line breaks to confirm trade set-ups.
Happy Trading
Jordan Craw
|