Want To Catch The Bottom?
- Posted by TheArmoTrader
- on June 19th, 2012
Fellow Stocktwits Blogger @AllStarCharts had a solid post last Friday titled “This is How Bottoms Are Formed“. He showed a classic inverse head and shoulders setup in the S&P 500 ($SPX). In his post, he states how he hates trying to pick bottoms (and tops). You could put me in the same camp. I rarely take counter-trend trades anymore when I trade (as in I get long/short near the low/high of the day). I usually wait for a reversal pattern or some type of low risk setup before taking a stab at it.
Rackspace ($RAX) caught my eye last week. It was real weak for a few days and the daily looked horrible. From what I understand, Rackspace is a solid company so one would expect a bounce at some point. However, you do not want to be a bottom-picker. You want to want for a setup.
Below is the 15 min chart of Rackspace. As you see, since late May, the stock has been weak. There should have been no reason to have been long after it broke and held below $50. It tried for a trendline break but couldnt hold at higher levels in early June. It sold off more and very nicely rode the 20 SMA and trendline down to ~$40.75 area. It broke the trendline, but didn’t see much of a pop. On the retest of 40.75, it held twice. This is where it would to take a stab at it, with half a position (or 1/3rd) with a reasonable stop probably below $40.25 ish (a level on the daily). The volume confirms that there is some sort of fight by the buyers.
Your chance to add came in the next few days as the stock reversed. There were several held bids and “previous resistance now support” areas along the way for you to add ($41.50, $42.15, $43). The stock has continued to hold higher & now looks great for a move back to $50, as long as the $MACRO environment is healthy.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Jerry Khachoyan is currently an undergraduate student at UCLA pursuing a degree in Political Science. He started trading in September of 2008. He concentrates on using technical analysis and reading the tape to enter the best risk/reward trades. The stock market to him is one of the greatest inventions by man.
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