Thursday, May 21, 2009

QID Trade Update

Click on Chart to Enlarge

I thought I'd give a quick lesson so to speak on the reverse head and shoulders pattern as it was one of the prompts for me to suggest quickly entering the QID trade yesterday.
This reverse H&S pattern shows up frequently on intraday charts, so it probably is worth any short-term trader's while to study good patterns. Things I look for are......

-volume should decline as the pattern reaches its lowest point/head
-the upthrust off the bottom should be nearly as strong (vertical) or stronger as the decline into the bottom. If you see a slow overlapping thrust off the bottom, beware.
-the right shoulder should undercut the low of the left shoulder, and then reverse to the upside very soon after
-as price breaks up out of the neckline volume should be picking up substantially. Beware low volume moves above the neckline.
-price should basically never close back below the neckline once it has broken out. A re-test should be allowed, but from experience the most powerful reversals will blow through and not pullback much shortly after breaking out.

The short-term S&P model is back near oversold, though the Nasdaq is not yet. It is probably smart to create a breakeven or better trade right now, but I will wait until later today to either suggest a stop placement or exit. The downside strength and approach of last week's lows has me favoring holding this trade longer.

I may post again later today.


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