One should always read price action to understand what’s working and what not. Here are a few interesting price action case studies to help you understand concepts.
Case Study: Twitter
The Twitter stock dropped to $40 near 100 dma back in early Nov 2020 and then thanks to market recovery made a comeback, rallied to 55. It then again pulled back to 100 dma by mid-Jan 2021. The stock then started recovering and even gapped up around early Feb on strong earnings and rallied to $80.
The Trade: Buy on double-dip support at 100 dma around the price of $45 resulted in gains of 75% in 1.5 months.
The Twitter stock then started forming a base at 60 – Gap support and just when everybody thought that the stock is poised for $100, the company disappoints with guidance. Today, the stock is down 12% and trading below 100 dma/$60. All the good work is gone.
What does the price action teach you?
- There is no guaranteed outcome, no matter how good the chart looks
- Always take windfall profits (at least 50%) on any gains above 60% no matter how much you like the stock.
Wells Fargo Bullish Journey
Wells Fargo stock started its recovery process along with everyone in the market around early Nov when it climbed above 50 dma at $24 and then slowly climbed to $35 by early Jan 2021. It was a market-driven move and it also pulled back with the market to $30 again to 50 dma. This was an unqualified buying opportunity.
Wells Fargo rallied with banking stocks from $30 and then made a large candle move on news that US Fed has accepted its asset cap review application. It gave another trading opportunity at 36.5 in Feb 2021. The stock since then has rallied another 25% to $45+.
Two Trades:
- Investment Buy at $30/50 dma around end Jan. The trade is now up 50%
- Trading Buy at $36.5 around the middle of Feb. The trade is now up 25% (Profit booked)
Alcoa: Supportive Theme and Bullish Price Action
Alcoa stock took off with a broader market in Nov from 100 dma to $25 and then pulled back along with the market to 100 dma around the end of Jan 2021 near $18-$19. Just when every momentum stock/sector struggled, this stock took off and has doubled in value in less than 3 months.
Why I am bullish on CLF?
The market loves metal/steel stocks and CLF has built a perfect base for take-off from 100 dma
I will hold CLF as long as it holds 100 dma
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers
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