New Ideas

What a difference a week makes. Last week’s market activity was dominated by declining prices, including a lot of “breakout fake-outs”. Which are never fun to deal with, but are an unavoidable part of participation in the stock market. This is when trade management skills pay off, not necessarily in terms of making new profits, but by protecting capital.

When the market is correcting, there is one watchword that comes to mind: Reduce.

• Reduce your current positions.
• Reduce your hold time. Take profits quicker, and get out of losing trades faster.
• Reduce your risk. Risk-off instruments include bonds and utilities (see TLT, IEF, ED and BKH from previous post). Initiate hedges such as buying index puts. Raise cash.
• Reduce the number of new trades that you enter. Slow down.

With that in mind, consider the chart of Royal Dutch Shell (RDS.A). Price dropped hard last week, convincingly breaking the lower boundary of a descending triangle. Possible target $40.

RLJ Lodging Trust (RLJ) is breaking down out of a descending triangle. Possible downside target is 12.50.

Commercial Vehicle Group Inc (CVGI) has broken down out of a descending triangle. Possible target is the 2017 low, around 2.25.

Team Inc (TISI) has broken down out of a 10 month symmetrical triangle. Possible target 9.50.

Xperi Corp (XPER) has broken down out of a descending triangle. The calculated target is 13.50, but note the gap from December 2019. Price could well bounce after this gap has filled.

United Airlines Holdings (UAL) has broken down out of a 13 month descending triangle. Possible target is 57.75. Expect volatility as news on the Corona virus evolves.

Review

BVN – Continued down during the first part of the week, then bounced off support at 12.13. Pattern is still valid.

ED – Continued up during the week, and on Friday hit resistance at 95.10 and hesitated, pulling back a little. Pattern still valid.

TLT – Continued up throughout the week, beginning and ending the week on a strong note. Pattern still valid.

IEF – Similar to TLT.

GD – General Dynamics is a good example of a “Breakout Fakeout”, finishing the week down. Pattern is no longer valid.

JBLU – Fell back during the week, but paused at support at the upper boundary of the triangle. Pattern is still valid, but handle with caution. Below 18.00 the pattern is no longer valid.

VNE – Broke the lower boundary of the pattern, effectively setting up a short trade rather than a long. This can happen when you try to anticipate a move, rather than waiting for it to prove itself. I am guilty of this on occasion.