From time to time, I 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 to decide which side of the trade you believe gives you the highest probability of success. In other words, do you like the short side of the market, or do you like the long side? You don’t necessarily have “know” what side to be on, but it certainly helps to take a stance. So, if you haven’t thought about it, review the overall 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.
One trading opportunity that I’d like to review today is that of BKE (Buckle, Inc.). Before discussing, please review the 1 yr. chart of LTD that I have outlined below, with my added notations:
If you have read any of my previous Chart School newsletters, you will already know that I believe the simplest to be the best. In my experience with other traders, and students that I have coached to trade, the ones that kept it the simplest always seemed to do better than others who may have overcomplicated things a bit.
This simplicity is on full display when you look at the chart of BKE above. BKE had found support at $35 for the last 4 months, which would have provided excellent trading opportunities. However, BKE has recently broken out through a key resistance level of $40 on route to a new 52 week high. With the market pulling back a bit over the past few days, BKE might also be pulling back. Since $40 was a key level of resistance when the stock was below it, one could expect $40 to act as a key level of support IF BKE pulls back down to it.
The Tale of the Tape: BKE (Buckle, Inc.) has formed key levels at $35, $40 and now possibly $45 if the pattern holds true to form. If BKE were to pull back to $40, entering a long position could be advised in expectation of a bounce higher. If instead BKE were to break above $45, again, a long position could be entered.
What if BKE does come to $40, but breaks lower? Traders could then enter a short position in expectation that BKE would continue down to the next level of support at $35. Entering a long position at $35 could then be entered as well.
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