Here’s a little update to my saggy saga. Generally speaking I still think my last update is still in play, however it’s getting on Santa’s naughty list and needs to resolve it ASAP.
Here is a chart I posted last time:
If you recall, I explained that after breaking out of the previous trading range at $2.43, we started an initiative move. That move is shown in the blue area. We fell through $2.43 and lingered in that $2 area for a month or so initiating a new volume profile. I said, something to the affect that, the problem is as we build up more volume in that area, we could eventually create a new point of control lower, which would lower the whole value area. You will have to go read the last analysis to see what all that means.
At the time the POC was where that red arrow is, around $3, and the value area high and low were the lines pointed out with the yellow arrows. As I feared, we lingered too long and now, as shown in the next chart, the new POC and value area is lower:
I left the arrows showing where the previous relevant areas were. This situation is not ideal, but can be fixed. The POC is simply the price range where the largest amount of volume is. Now the POC has moved from about $3 to about $2. If you look at those two areas, the volume at $2 isn’t much more than $3. If everything plays like I guesstimated, then getting back to $3 should add enough volume there to retake the POC and move the value area back up.
The reality is the $2 and $3 areas are both high volume nodes without much difference at their highest points. So, even though $2 is considered the new POC, both areas are similar enough to have equal weight on the price. That means the syntax of this chart has changed to reflect the new numbers, but the semantics from my last analysis hasn’t changed. I would have liked to see a break back over $2.43 and re-enter the previous trading range. I don’t like hanging out in this area shown in that gray oval. This low volume area is too volatile and unpredictable for me.
However, I can understand why we didn’t break it yet. First of all, we did have some increasing volume to drive it, but not enough to sustain it. Second, all that ownership at $2 has profit. I suspect there are lots of swing traders who are more than happy to take those profits at that $2.43 resistance. Then, you also have a lot of ownership at $3 who saw this week’s move as an opportunity to sell into strength and minimize their loss getting out in time for tax season.
One last thing before I go:
Here is a 15 minute chart of yesterday and today. That vertical dashed line is the division between the days. Let me start by saying that intraday charts are silly because they change sentiment too quickly to be useful. I use them for information only, not to trade, but even then don’t look below the daily very often. That being said, I think the above chart does give us some useful information going into next week.
That magenta line at $2.43 is the support of the prior trading range we are trying to get back into. The gray area is that gray oval showing the low volume node in the daily chart and the blue is the initiative move also from the daily chart in the previous section.
Here is my interpretation of the story being told here, which, in retrospect, may give some clues for the start of next week.
So, Thursday was looking good, but then that shooting start happened. The shooting star is pointed out with that first yellow arrow. As far as patterns and candlesticks go, I stick to the basics because a most of them are beyond stupid. One of the few candles I pay attention to is that one, the shooting star. It’s at the top of an uptrend that lasted most of the day. Then you get that candle with the long upper wick right there at resistance. That would be a shooting star, it usually signifies a top and that upper wick means sellers came in. That move really is no coincidence or mystery if you think about it. As I mentioned, there are probably lots of swing traders in all the ownership at $2. They saw the setup and they knew where resistance was at $2.40ish. Their plan all along was to ride the swing from $2 to $2.40 resistance and bail. Hence, the shooting star. The big red candle after was confirmation that the shooting star was indeed a shooting star and lead to more selling.
Today something interesting happened. It opened well and the remaining swing traders used it to get out before they lost their profits and panic selling within that group ensued. That accounts for the drop this morning and increasing volume during the drop. After the morning deluge, another candle I pay attention to occurred. That would be the second candle I pointed to. That’s a hammer, which is the opposite of the shooting star. It happens at the bottom of a downtrend and is a show of strength that signals a possible reversal, and that’s pretty much what happened. That candle was the beginning of a recovery that led to a strong close.
Before we get to the close, let’s backtrack a bit. That orange arrow in the volume area shows decreasing volume during the morning selloff. That tells me the supply was drying up as sellers were leaving the room. It came to an end with that hammer. After that, the volume was very low as supply had been absorbed. Following, there wasn’t a ton of demand which is evident by the low volume, but there was even less supply. Therefore, demand could overtake supply and move the price up with little effort.
That whole sequence of events formed an inverted head and shoulders. Just like the hammer, that patter indicates a potential bottom and reversal. By the way, a head and shoulders inverted or not, is one of the few patterns I give any real credit to. I annotated the shoulders and head in red and the neckline in blue. Finally, back to the close, I said it was a strong close because it was a decisive move through that neckline as shown.
Going forward into next week, if the probabilities of the pattern hold, then I wouldn’t be surprised to see another attack on the $2.43 resistance. A successful campaign there would be important because we really need move that POC and value area back up. The closer we get to $3 the harder it will be to progress without big volume. I suspect a lot of those owners at $3 are going to be looking to bail as the year ends and they get closer to break even. The affect of that, without the big volume, would be supply overwhelming demand and the retest of $2.40ish. By then, the new year will have started and there will be new ownership in the $3 area who would be more willing to hold and even average down on the retest. That would bring back the demand overwhelming the supply and start heading to the next low volume area around $4.
So, that was all a very long winded way of saying I’m still sticking to my original analysis even though the volume profile has changed.
Merry Christmas Ho, Ho and Ho!