Let’s get down to business. In this article I will get right to the point and the core of the matter — the technical analysis matter that is. This is a situation in which a lot of traders are caught off guard most of the time and it revolves around: earnings, gaps and location.
Let’s take a look at an example.
BA (Boeing) Company posted better than expected quarterly results the day seen on this chart. Shares are up 2% ahead of the opening bell on April 23 but it was not enough to start flying above the turbulence zone (resistance) .
Good earnings report was not enough for price and clear resistance area at $132.00 formed by the gap down on January 29. So what are the arguments that can stand in favor for this stock to continue higher?
Let’s take a look at the technical chart below.
1. Up trending on major timeframes
2. New level of support at $120.00 area
3. Ascending support trendline
4. Price trading towards the upper side of the consolidation
5. Good earnings report
6. Good fundamentals
7. Solid company
What are the cons?
1. Price captured in a range
2. Trading into resistance area
So computing all this data although you see that there are only two cons against 7 pro, the cons outweigh the pros and why is that? It is the location at which it is trading now.
Let’s take a second look at the first chart. You can see that the gap up on April 23 occurred into resistance, blocking the accession of price. But a break of this price can bring more upside.
But what about the market? If the market will continue to weaken even the strongest stocks will start giving up.
It is always safe, especially for a long term trade to go with chart timing and market correlation.
There are many good arguments to take this trade for a long. But key element here is Location.
In the above example the strategy would be based on a break of resistance, the break of the prior resistance area targeting a filling of the void (gap fill) and targeting the prior set at $144.57 and further price projections into $150 and $166 areas for long term.
If BA gets rejected from the resistance area where it is trading now and the more it will try to trade towards support, on any break of support along with the weakened price action from the market this long strategy will no longer be viable.
= = =
Learn more about Metcalf’s trading education firm: Trade Out Loud
