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.
Well, today I’d like to share a trio of potential trades and here they are:
The setup: AMP has created a very nice up-trending support line over the last 8 months. The length of time in which this trend line has formed, coupled with the number of times it has been tested, demonstrates how important this support is. The stock has recently stalled at $65 and appears to be rolling over for a pullback.
The trade: A long position on a pullback to the support line.
(Back-up trade: If the trend line support does not hold and AMP was to break below $60 (current trend line support), you should re-evaluate for a short position with a stop above $60.)
Tale of the tape: After creating an up-trending support line over the last 8 months, AMP looks to be pulling back to that support line. At this time, support is at approximately $60. This would be an excellent entry for your long position with a recommended stop below the $60 level.
The setup: After a very nice rally from July to January, BAM has formed a rectangle consolidation pattern from $32-34. This is known as a “battle between the bulls and the bears”.
The trade: A long position on a break above $34 or a short position on a break below $32.
(Optional trade: Long position on a pullback to $32. Due to the obvious trend of stock, I would not advise an optional short at $34.)
Tale of the tape: BAM is stuck within a rectangle pattern. Most traders will wait to see who wins “the battle”. So, look for a breakout above $34 to enter a long position with a recommended stop below $34, or a breakdown below $32 to enter a short position with a recommended stop above the $32 level.
**If you enter the optional long at $32 first, you could add to that position if BAM breaks above $34.
The setup: MSCI has rallied from July until it’s peak in December. Since October, MSCI has formed the common head and shoulders reversal pattern. Although this does not guarantee a breakdown, it does commonly happen.
The trade: A short position on the confirmation of the H&S pattern, which would be a breakdown below the $34 support.
Tale of the tape: MSCI has formed a very nice H&S reversal pattern after a long 8-month rally. A short position could be entered on a break below $34 with a stop above $35.
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