I can’t believe in just over 3 months from now I will have held this for a year!
Before I begin, let me make this clear, I don not think technical analysis is predictive AT ALL. It doesn’t tell you what is going to happen based on price movements, it simple says that certain setups have better statistical probabilities of playing out base on past performances of other similar setups. Personally, I have tried to lay out a plan twice since we enterer the $3 area. Both times I used some sort of analysis, and both time this bitch kicked me in the nuts. So just so you know, I was doing pretty good knowing to not average down from around $7.00 to $3.00, but lately I’ve been sucking ass.
I won’t beat myself up too much though, there are some things I touched on in those earlier analyses that are still in play. However, they have taken longer to play than I had anticipated. So, without further adieu, here is my third attempt at putting my balls on the chopping block.
This could get a little complicated because I’m working in two time frames, the daily and weekly. In both these time frames I’m watching an inverted head and shoulders, potentially, develop (IH&S). I remember reading on the forums someone say they were watching a cup and handle (C&H). This is also true, but a C&H is pretty much just the right side of an IH&S. Here is a link to the details of an IH&S. Basically, it signifies the bottom, or reversal, of a down trend… and GOOD GOD have we been in a downtrend!
Let’s start with the daily chart:
By the way, you can click on that to get the full size image. So, those magenta lines are the trading range I’ve mapped out based on some support and resistance lines that go beyond a year. You can see we broke that long term support when we breached $2.43. The orange solid lines are the support and resistance of a long term down channel that we’ve been in all year. That orange dashed line is resistance of an even longer down trend. We will see more of that in the weekly.
Now, something happened after that breach of trading range support, something that I mentioned in previous analysis and on the boards. First there was the great “Please Gary, grab your right shoulder with your right hand and stick your whole elbow in my ass because your wiener won’t hurt enough” move that broke the support line on big volume. You would think that after such a quick move down on heavy volume we would be headed for the support line of that down channel. However, after the sodomy, there really hasn’t been much follow-through to the down side. We are in no way, shape or form out of the woods; but this is looking like a possible spring setup to me. By definition, the biggest indication of a spring is when long term support is decisively broken, but after which, there is no follow-through to the down side. Can down side still occur and blow this whole spring idea out the water? Absa-f-ing-lutely it can, but so far it hasn’t. The result of a spring is typically a quick move up that reclaims the previous support, followed by a retest of that support again.
Now, with the spring thing in mind, let’s look at that same chart, but zoomed in on the IH&S setup that I mentioned earlier:
So here we are, the potential development of an IH&S on the daily. That first red line on the left is the first shoulder and the second area is the head. I drew in that blue line as a guess to where the neckline might be, but it’s really too early to know. If it all works, we’d have to see where the right side of the head goes to in order to determine the neckline. I made the blue line for shits and giggle, but we were sodomized just above $3, so $3 seems somewhat logical to return to.
Looking into the crystal ball, if it all goes well, the chart may eventually look something like this:
I know what you’re thinking, I’m just pulling that Picasso out of my ass so you can visualize what I want you to see. But first of all, I can’t pull anything out of my ass because I still have an elbow plugging it up and secondly, I actually do have a logical case supporting this scenario.
Remember that spring setup? If the spring is in fact a spring, it will typically play out with a quick move back above the previously broken support, then retest that support. If the retest passes, up it goes. Now, read that again with one eye while you look at that green line with the other.
If the spring gets sprung a quick move back above $2.43 would happen to reclaim the trading range. Wherever that up thrust ends would form the second point of the neckline. In my diagram I drew that as ~$3, but that’s not written in stone. After the up thrust, there would typically be a retest of that $2.43 support again. That retest would form the bottom of the second shoulder. Finally, if the retest passes, up it goes. Wouldn’t you know it, the typical result of a spring would also map out to be the right side of the IH&S!
Now I’m really going to put my neck in a noose and even give a potential time line for this to happen, if it happens. I wouldn’t say an IH&S is nice and symmetrical, in fact, sometimes it can be so messy it’s quite unrecognizable. But again, for shits and giggles, lets use the symmetry to get a ballpark figure for a timeline. From the beginning of the left shoulder to today has been roughly 2 months. So, assuming we are half way into the pattern, that would put it mid February to complete somewhere in the $3.50 range.
But wait! there is more. That was just the short term outlook. I have a long term outlook as well.
So, here it is. This time with weekly candles and 3 years of data. You can now see the trading range more completely, as well as the down channel we’ve been in all year. Also, that orange dotted line is showing a long term resistance line which could come in to play later down the road, but don’t worry about that for now. Again, you see we broke that support at $2.43 and have been below it for a month now, but without any real follow-through after the breach. Spring? One thing I didn’t mention, which may be a caveat, in my experience, springs don’t usually linger this long under the broken support. So, keep that in mind. All this analysis sounds great, but I’m not 100% sure this is a spring because it’s taking so long to react. However, to me, it still looks more likely than not to be one.
So, let’s zoom in on the pertinent area like before:
This looks very similar as the daily doesn’t it? Here is a fun fact, I gave a target of around $3.50 for the IH&S on the daily. Look at the blue line above. That is a best guess neckline of the longer term IH&S, and if you look close the neckline is estimated around $3.50. So, if the short term IH&S plays out, it will setup the neckline of a longer term IH&S. Whenever you can have different setups that coincide with each other and in different time frames, it’s time to pay attention.
Finally, the big picture. If, and it is a big if, the daily shorter term IH&S plays out, initiated by a spring, it would form the right side of a longer term weekly IH&S. That part I have circled in yellow is essentially the short term pattern playing out and leading to a longer term recovery. If it does do something like what I have shown, there will be a big point of contention at that orange dotted line. My wild ass guess is in the $4.50 – $5.00 area. If that gets beat I’d say back to the top of the trading range around $7.00.
The bad news for the impatient/instant gratification types, is that I wouldn’t expect to see any of that long term scenario to come to fruition until the end of 2018.
If all of this blows up and none of it is even close, don’t worry about wanting to kick my ass, I will have already done it for you already.