I initially had no clue what type of company Avalon Bay was. It sounded like a makeup company and I’m not a makeup-wearing kind of guy. Not that there’s anything wrong with manicures or pedicures from time to time, though. (We have to keep looking fresh for our ladies, right gentleman?)
Avalon Bay (AVB) is a housing and apartment company. Personally, I have never rented through the company as they don’t have any communities in Florida or Tennessee – the two places I lived while renting. Nevertheless, let’s take a look at making some money off of them.
THE SETUP
Below is a weekly chart on AVB. There is an interesting pattern that is still forming that I would like to keep an eye on: a double top with volume increasing recently on the bearish rollover.
We’ve had four very consistent upward trend lines that are starting to break down a bit. If AVB were to close below $134 my longer term target would be $120 and then $110. We will find support at both of those locations.
FURTHER CONFIRMATION
An argument could be made that AVB is also forming a head and shoulders pattern on a daily chart with the right shoulder also being a double top. As always, it’s important to wait for a close below the neckline on both of these patterns, which is $134. In addition, we are below the 200 simple moving average.
MITIGATING LOSS
A stop placed above the 200 simple moving average at around $138.60 would give me a more than acceptable risk/reward ratio.
WAIT FOR THE TRADE
Let’s not be emotional about this trade. Let it come to you with a proper contingency order set up. On a cautionary note, the open interest on the options for October and November is not incredibly phenomenal. I prefer in the thousand range but it’s close enough if your fancy was tickled on this trade and wanted to purchase bearish options.
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