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Winding up the Spring
Welcome from me to all our Safety in the Market traders to this month’s dedicated newsletter. What a great rally we have seen in the last few weeks. While it has been happy hunting for many, others have been left parked on the sideline waiting for a ‘decent’ pull-back that just never came. The title of my last monthly article was ‘Opportunities, Opportunities. Opportunities...Everywhere’ remembering that article was written on 10 July – it turned out to be not a bad call.
Taking a look at the two markets I focussed on last month – Seven (SEV) and AMP, we can see in the follow-up charts, they both exploded to the upside. Compare these with the charts taken at the time and you can see the money that was there to be made.
Chart 1 – Seven (SEV) Double Bottom Follow-up
click chart to enlarge
As you can see in Chart 1, SEV has gone absolutely berserk off the double bottom with no signs of stopping just yet. The next pressure date to watch for a reaction will be closer to 19-24 August and even then you would only expect any sell-off to be just a pull-back, rather than a new bear cycle.
Chart 2 – AMP Big Picture ABC Follow-up
click chart to enlarge
Also you can see in Chart 2, AMP has busted out, smashing through our big picture Point B and ready to head higher. For now future price movement appears to be long and strong and the $5.57 level (or our big picture Point B) an area worth looking at for future support following any pull-backs.
To move on this week to something new, I again have analysis to share with you from a recent workshop. This time an ABC long trade that came up on CSL while presenting with Aaron Lynch at the Melbourne Trading Tactics Workshop.
Chart 3 is some slightly bigger picture work on CSL. This emphasis on bigger picture work is hopefully something you are picking up on. What I have done on Chart 3 is mark with ‘arrow-lines’ the size of the recent downward sections. We have four main sections marked:
1. 2/9/08 ($41.97) to 16/12/08 ($26.85) – A range of $15.12
2. 26/2/09 ($38.52) to 24/3/09 ($29.94) – A range of $8.58
3. 1/5/09 ($35.07) to 29/5/09 ($28.43) – A range of $6.64
4. 30/6/09 ($32.39) to 24/7/09 ($29.27) – A range of $3.12
As you can see – with each subsequent range we were seeing a decrease. Looking at the last two ranges we can also see that the last range of $3.12 is really quite close (close enough for me) to stopping at 50% of the preceding range of $6.64. This stock really looked like a ‘wound up spring’ ready to launch to the upside and a perfect opportunity for a first higher swing bottom trade to go with it.
Chart 3 – Contraction of Downward Sections on CSL
click chart to enlarge
Now zooming in to focus on the ABC trade in question we can see some other confirming signals to taking a long trade. Chart 4 is the close-up of the daily bar chart market action with a ‘Swing Overlay’ applied using ProfitSource. Here we are using the low on 24 July 2009 ($29.27) as the Point A for the ABC long trade.
Chart 4 – CSL Daily Bar with Swing Overlay and ABC Set-up
click chart to enlarge
Entry was triggered on 5 August 2009. Now one thing here to note is that the market did open just outside the 33% limit on the entry day. Here is one occasion I left entry orders on for that day as I had my big picture reasons for going long. Remember David Bowden’s wording surrounding this situation – ‘If I had to have a hard and fast rule, I would tell you take your entry order off the market should it open outside your limit.’ This is one situation where I felt it wiser to still go long on the first higher bottom and try my luck with a fill on the limit during the day. It is the supporting big picture reasons that gave me the conviction to do that – there’s the big message in this situation.
Since this ABC the price has moved up very strongly, in fact triggering another ABC long trade today (12 August). This big picture analysis also tells us that the top on 30 June ($32.39) is in ‘ton’ of trouble and looks likely to be broken in the upcoming few weeks. We will review that over coming months. For now I’m bullish the overall market and view any pull-backs as further opportunities to go long. That sentiment may very well change as we get closer to year end.
Until next time...
Noel Campbell
Professional Derivatives Trader
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