A very simple and effective strategy for trading on a technical basis is “rejection at support or resistance”. The longer dated the support/resistance level, the more powerful. The premise is that if a level like this is held, it signals a very good chance of reversal. Think of it like an attack on an army. The more time the “attackers” cannot breach the lines, the stronger the “defenders” become and it’s very possible the defenders can then become the attackers. Today a case in point in Amgen (AMGN). Take a look at this chart:
You can see that $155 level has acted as support and resistance many times over the last 52-weeks. The $155 level also acts as an “institutional price level”. This means that big institutional money likes round numbers. $100, $125, $150, $155, etc. It doesn’t make a lot of sense, but it is the truth. Also, you can see that on Friday, the 200-day MA was breached. So, you see a test of the major sup/res line, the breach of a major moving average and most importantly a REJECTION of these to close above both. That signals reversal to me. We signaled the following:
12-7-15: Based on our methodology a signal has been generated:
Buy (opening) the AMGN January 8th WE 160 strike call
Sell (opening) two (2) of the AMGN January 8th WE 165 strike calls
Buy (opening) the AMGN January 8th WE 167.5 strike call
For a DEBIT of $1.30 or less.
This signal is not good til canceled and is valid with AMGN trading $157.50 or higher.
This is a bullish directional “broken wing call butterfly” where the ideal price at expiration is at the 165 line. If that is the case, we will make $3.70 while risking $1.30. If AMGN really goes up, it’s not ideal but all is not lost. We make $1.20 while risking the same $1.30.
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