CSCO: Study Case of 2B Test of Bottom:
"...for those that believe in V bottoms...:"
Actually, CSCO is not really a V bottom, but a really decent setup on the daily chart. Now that the day is over, we can disclose the trade that was set up in last night's newsletter.
Excerpt from Sage Advice Newsletter, October 30 Edition:
Review of Day Traders’ Top Ten
Today, we have some interesting charts to show…
The top trader was CSCO, sliding amidst analyst downgrades and whatnot. Today, it tested the October 11 low. The big flush down was made on heavy volume, and formed a Japanese candlestick called the “hammer” on the daily chart. I have written before that the hammer pattern is one of the easiest ones for the public to pick out, and therefore is unreliable, but on a test, it will have to do. The question now is if the public puked enough on this break of the October 11 low, and if new short positions have been established. Given the volume, the probability is that those who wanted to or had to sell are now gone, and new short positions have been initiated. This is the 2B test of bottom formation. For those who have been dying to buy CSCO, this is the time. Place a buy stop just above today’s high of $49 11/16, and if you are filled, enter a protect stop loss order at whatever the low of the day happens to be at the moment you are long, but in no instance should you give this more than a $2.00 margin of error. If you are wrong, you will be stopped out for a minimal loss. ispeculator.com
IF the 2B bottom is here, THEN CSCO “should” turn around and thrust up over the next day or two to confirm. As soon as the trade is $2.00 in the money, my suggestion is to move your protective stop loss order to breakeven on your long position. The first target to the upside intraday is at the 20EMA65, which is now at 50. If sellers don’t show up here, then the first target overhead is the 20-day EMA at 54. ispeculator.com
The second target is the other side of this trading range at 59, where the 50-day MA happens to be. Of course, there is always the possibility that CSCO collapses from here, a la the scenario outlined on the weekly chart, but in this position, initiating a long position is still a better risk/reward trade, in my opinion, since I never sell at new lows, the same way I never buy at new highs. Remember NTAP, BEAS, CIEN and the others over the past few weeks? Those were certified 2B tops. ispeculator.com
For more information on the 2B setups, please refer to ispeculator.com
At the close, we can now update the chart. What a 2B that was! Intraday target was hit early and the first target on the daily chart has also been achieved. ispeculator.com
Teresa |
