I’ve got to be honest here ladies, I would like to consider myself a man’s man. However there are two things that could potentially disqualify me from such a category. I don’t know that much about guns and I am also lacking any and all mechanic skills. I know how to change a tire, as long as the lug bolts are not too tight, and I’ve been known to change a wiper blade once or twice.
I could make the argument that I’m helping the economy and Americas work force by taking my car in to get an oil change, fix my belt, hoses and whatever makes that “click, click” sound when I turn. There are men out there who took it upon themselves to learn such a handy trade and who am I to deprive them of work?
I bring this up, because I was peering over some stocks today. Auto Zone is in an undeniable channel. Quite a large one at that! This stock is moving every bit of $30 in both directions. Charles Dow would likely agree with my opinion that AZO is in a distribution phase right now. It was in a massive bullish trend for the better part of three years then began its current consolidation process. When a stock is moving sideways, the moving averages are also sideways. Therefore, they are not helpful very helpful in a sideways market. Stochastics are quite helpful though, so I’ve included them in the chart image. If we get a close below our support, AZO has a huge probability of moving bearish, at least the size of the current range we are in, so approximately $30.00.
The green dotted line simply represents the bullish area to enter. If we get a bullish candle, or move and stochastics start rolling up again, well it’s worked, about four times, why not five? This is a neutral trade set up. No reason to let emotions get involved. The liquidity is not as high as I would like for a stock but most options near the money have an open interest of more than 500. And because AZO is a more expensive stock, 1-5 contracts is still a nice size investment.
A stop for a bearish trade could simply be placed above the resistance line, which is now acting as an obvious support. Old support will become new resistance. Our stop for a bullish trade could be placed below the current support.
