Trading in the stock market can be complicated. It can be confusing. It can be challenging to know what trade to make and when to make it. However, there are those trading opportunities that are clear and obvious. Usually, the “keep it simple stupid” trades tend to be the best. Simple or not, does that mean the trade will work out in your favor? Of course not, but at least you knew it was the right trade at that time. A stock that might have made a move that fits that description would be WCRX (Warner Chilcott Plc).
Warner Chilcott is a specialty pharmaceutical company focused on the women’s healthcare, gastroenterology, dermatology and urology segments of the North American and Western European pharmaceuticals markets. Please take a look at the 1-year chart of WCRX (Warner Chilcott Plc) below with my added notations:
WCRX has been holding a very important level of support at $22 for the last 7 months. No matter what the market has or has not done this year, WCRX has not broken below $22 . . . until yesterday. Something seems to have changed with WCRX. It has always held $22, and then the level breaks. It’s simple. Stocks that break significant resistance usually move higher and stocks that break significant support tend to move lower.
The Tale of the Tape: WCRX had a very important support at $22 throughout the entire year. Yesterday the stock broke below that $22 level, thus should be moving lower. Since the stock doesn’t move all that quickly, the most ideal entry would be a short position on a rally back up to $22, if that happens.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. 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.
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