From time to time, I would like to give readers a heads up on potential trading opportunities. Before considering any trades that I might outline in Chart School, always remember that you must decide for yourself if you like the trade.
A key factor in making that decision will be deciding which side of the trade you believe gives you the highest probability trade. In other words, are you bullish or bearish on the market? If you haven’t thought about that, review the market indices themselves. Take a look at the S&P 500 for example. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
The trading opportunity that I’d like to review today is that of MOS (Mosaic). Before discussing, please review the 1 yr. chart of MOS that I have outlined below:
If you have read my previous Chart School newsletters, you may already know that I believe the simplest tends to be the best. In my experience with other traders and students I have coached to trade, the ones that keep it the simplest always seem to do better than the ones who may overcomplicate things a bit.
This simplicity is on full display when you look at the chart of MOS above. From March until now, $65 has been a key level of both resistance and support for MOS. Over the last 3 months, $70 has also been key as support, then resistance. These levels can provide some excellent trading opportunities. First, a buy at $65 support looks great. It also appears that a short at $70 is possible, especially if it continues to shoot above $70 only to sell-off back below it. But, what if MOS breaks below $65? Or, what if MOS can hold above $70?
The Tale of the Tape: MOS has two very important levels at $65 and $70. Long positions could be entered on a pullback to $65 or a break and hold of $70. Short positions could be entered at $70 or on a break below $65. Regardless of the trade, stops above the levels on shorts, and stops below the level on longs would be advised.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT