Hi Gush,
Here's another good example of expansion/contraction of BBs.
Reid posted this chart earlier today.
stockcharts.com[w,a]daclyyay[dc][pd20,2!b40][vc60][iLyb20,2.0]&pref=G
139.142.147.218
I think you can see that the BBs have expanded too far. Now they must contract, and the quickest way to accomplish that is for the stock to trade up away from that lower rail. That will pull the lower rail up, but the upper rail will also come down (but not as fast).
Also, the technicals are showing buy signals, and it is extremely oversold.
This is a good example of how to use BB expansion/contraction to evaluate a trade---the condition of the BBs is corroborated by the technicals, making a long position here more likely to work out well.
Another corroborating factor is the volume surge when ADES traded down to the lower BB rail. This is supportive volume, and such strong relatively sudden surges in volume are typical of short-term reversal points because they indicate strong buying interest, not strong selling interest. This factor is of lesser importance in this particular case because that buying interest is almost certainly not from institutions or professionals, who own very little of the float. Most institutions cannot consider buying this stock because of the small float (4 million shares). They simply cannot acquire a big enough position to make it worth their while, and if they tried to buy, they would push the stock up by an inordinate amount unless they bought less than 5,000 shares a day or so (that's only $100,000 worth of stock).
The only potential problem with this trade is the low volume, which tends to make technical analysis relatively unreliable because the chances the stock can be artificially pushed around are higher.
Personally, I usually (not always) like to trade stocks that have daily volumes of at least 500K, preferably 1 million or more. The float on ADES is only 4 million, and the average daily volume only 20,000, with a current share price of $20. That means it would take only a few hundred thousand dollars to push the stock. It can be easily walked up or down by MMs (or traders) using a rather small amount of inventory. On the other hand, that makes it a potential target of momentum traders, who typically take long positions. The one ingredient missing for momentum traders is the lack of exotic technology---they are involved in mercury emissions control for utility companies. Pretty boring stuff for the mo-mo crowd.
One more example, a bearish chart, looks like a blow-off top here (MSO):
stockcharts.com[w,a]daclyyay[dc][pd20,2!b40][vc60][iLyb20,2.0]&pref=G
139.142.147.218
If MSO trades down, that will contract the overly expanded BBs. A pretty good short candidate in my view.
T |
