[divider]

12.26.12 Wednesday

[divider]

Watch For H&S Neckline Testing

(Daily Chart)

As you can see in this well defined Head and Shoulders pattern on $MRK and it looks very bearish at this moment and one thing what I am not going to do is to chase after this bearish trade.  It’s very possible that we could continue to tank but I will not chase after this unless it gets some kind of bounce or a pull back to the upside for a good entry.

Head and Shoulders or Double or Triple Tops, these reversal patterns neckline is like to be tested (as new resistance) immediately or subsequently.  And in this case because we gaped down significantly after forming the right  shoulder, it never had chance to test the neckline as new resistance. And given the fact that we are slowing down at the gap support from 6/29, I am looking for a pull back to the upside to test the neckline and that’s where I will be entering a bearish trade with some Put Options.

$42.50 is where I would like it to bounce and I want to see a slowdown signals at the level such as Doji or a spinning top candle followed by some sort of reversal candle stick pattern (such as Bearish Engulfing, Shooting Star, Dark Cloud Cover etc.) next day.

$37.00 is going to be the target if the plan works out well.

Cautionary Signal: That gap from $43.50 (12/20) could be tricky as $MRK might get sucked into filling that gap and continue to travel to the upside breaking the neckline at $42.50.  If that happens, I would wait and see if that top of the gap area ($43.60) will work as resistance and when it starts to roll over, I would enter bearish then.

[divider]

12.29.12 Saturday

[divider]

I Am Still Not In This Trade

(Daily Chart, 200SMA-Pink)

This scenario is a great example of why I don’t chase after trades even though I would’ve profited if I did last Wednesday. I think many people fall for this kind of scenario thinking that most stocks act this way. The truth is this is one of the scenario that is rare to see. Most stocks do not drop straight down unless market as a whole is crashing.

So the best entry would’ve been at around $44.50 when $MRK retraced for a little bit and then it tanked.  Once I miss that opportunity I don’t ever chase it and that saved me lot of money in the long run.  It lost about $4 in 7 trading days without any kind of pull back yet and I am still waiting for it to retest that 200SMA as new resistance and that would be my bearish entry.

Targets (if I do enter bearish positions) : $39.50, $37

[divider]

1.2.13 Wednesday 10:33AM CT

[divider]

Entered Bearish Earlier This Morning @ $41.50

(Daily Chart | 200SMA-Pink)

This is why I don’t chase after a trade once I missed the opportunity but I wait for next opportunity and this morning was that opportunity.

Target: $37.00

[divider]

1.4.13 Friday 8:51AM CT

[divider]

Neckline Testing Begun, Added More Puts @ $42.45

I guess my bearish entry was little bit premature yesterday.  Neckline testing very often occurs in Head and Shoulders reversal pattern and because of the scale of this particular H&S pattern, the neckline testing has also been in a big scale (as we have dipped pretty low before it came back up).

It is possible that the stock could just continue to go on higher breaking the neckline resistance but it has higher chance (statistically) that after testing the neckline, it would probably roll over. Increasing volume is a concern as it seems like Bulls have gained some momentum last several days. My stop is tight just above 20EMA.

Head and Shoulders reversal projected target: $37.20

After Close

Well here are few good signs for Bears.

• Bulls are slowing down
• Neckline IS acting as resistance
• Formed Bearish Dark Cloud Cover candle formation (Bearish Engulfing would’ve been better)

However we are still trading around 200SMA (pink) so we would need to get further away from it next week.  As long as $42.40 H&S Neckline resistance holds, I think it’s going to roll over.

[divider]

1.8.13 Tuesday

[divider]

A Shooting Star, Can It Become a STAR for BEARS?

This massive Head and Shoulders reversal pattern neckline (see arrows) is still holding as resistance.

Essentially stock just tanked but then it found some support, started driving up the stock (which many traders think that it’s a complete bullish reversal) and then it finds neckline and that’s the place where usually H&S pattern’s true power gets exposed. But the confirmation is needed.

Neckline resistance, price got rejected and formed a Shooting Star (today’s candle=long upper wick (3 times a body) with small body). This candle isn’t strong enough to change the direction of a stock by itself but it can become lethal when it happens at a critical level such as these.  However we are still trading above 200SMA (red moving average) so for a confirmation of roll over, we will need to break below 200SMA and close below recent support of $41.70ish (short-term red line support) which I am eager to see if that could happen tomorrow.

[divider]

1.10.13 Thursday 8:45 AM CT

[divider]

Stopped Out @ Open

Didn’t work out as I hoped.  Got stopped out this morning at open with loss.