Weakness at Resistance - NVDA, PLUG, TTD
When you see it, you need to act quickly with your trades. Here are a few signs of frailty that signal a move lower could be on the way.
The candles for NVDA, PLUG, and TTD all had momentum behind them coming into the week which was an exciting set up. Getting too excited and going long with the bulls on Monday, either buying the stock or call options, would have seen deep trouble Tuesday, and quickly. How did we avoid that mistake?
I reviewed why we draw levels and how to utilize them in last week's newsletter and if you followed the simple but disciplined trading process that was outlined you avoided getting caught in a long position. If you were really paying attention, you got in with bears and bought puts, cashing out on the drop. More on that later.
If the candle closes above a key trading level (or trend line) the sentiment is bullish (higher stock prices are coming) and generally speaking, taking a long position is the plan.
When the candles fail to close above key resistance levels, the bears are showing their hand. It is almost as if they’re defending their turf. This means two things, there is no reason to go long (I’m not fighting a bunch of bears trying to push the price lower), and this is an opportunity to take a short position like buying put options.
There were opportunities for this type of trade in each of the stocks on the list for C&C Members last week. The most obvious to me was with NVDA. Less so with TTD, but the slide all week worked out. PLUG was choppy but the 20-day SMA (simple moving average) gave some clues. Ok, getting to the recap of each trade starting with NVDA!
NVDA Puts for the win Monday, Calls on Friday
It is important to have a plan, I can’t stress this enough. It is equally important to be able to identify when the direction is clearly going the opposite of the plan. Changing course and riding momentum is all part of using charts and trading levels.
The plan for NVDA was around the bulls taking over this week. However, if the candles failed at resistance (our theme for the week) we had a plan for that as well, and it was a simple plan.
There was an early test of 145.23 on Monday followed by weakness and an opportunity to take those 140 strike puts. Those that did woke up on Tuesday with big profits after a horrible CPI print showing inflation is still on the rise. The added bonus was you really had no reason to completely exit your position until later in the day as the candles moved lower all Tuesday.
The bulls showed back up on Friday after a lower opening price and test of the 126.25 level early on in the day. There were multiple signals to take a long position before the big push up and plenty of ways to make profits with the bulls on Friday.
The chart below shows the bounce off of 125.25 and highlights the higher lows and higher highs being made by the 5-minute candles. This is establishing a trend higher which quickly gets support by the EMAs (exponential moving averages).
Taking entry with call options when the 5-minute candles touched the 50-EMA provided multiple opportunities for solid profits. There were a couple of pieces of information supporting buying calls. The higher highs/lows and the support by the EMAs.
Taking profits as the candles approached resistance at 130.25 also proved to be wise, as it almost always does. Remember, profits are bigger if you can take them on the green candle when compared to waiting for the red candle.
TTD Couldn’t Even Find $68, Forget About $69
The reason trading the reversal for TTD was a little more difficult was they reversed at the bottom of the gap that was just above, rather than filling the gap completely and then dropping lower which is what I expected. Again, trade what is presented and don’t force anything.
If you got in with puts on Monday, I’d say you weren’t taking more risk than what I outline with my trading process. There was still a lot of potential room to move up before hitting resistance and I think waiting was the right play, even though that kept me out of nice profits Tuesday. Over the long haul I think it is vital to keep the odds in your favor. Unfortunately, from there the frustration continued.
Tuesday bounced around support at $63 and Wednesday thought about moving lower but closed above. The long bottom wick off of support might have tempted some to go long here only to see an open lower Thursday and again Friday. The set ups were not obvious, taking no trades or small losses is all part of the process and something every trader must get comfortable with.
Thursday gave the only real opportunity as the candle rejected at the 20-SMA and moved back below support at $63. Taking puts on the rejection was the optimal trade and Friday gave plenty of opportunity to take profits as the candles opened lower and stayed lower for most of the day.
PLUG Moves Above the 20-SMA but H&S?
A choppy week really kept me out of PLUG but I couldn’t help but notice the Head and Shoulders pattern that seems to be forming. Typically, when you get a pattern of three peaks with the middle peak being higher than the two outside peaks, you get a head and shoulders pattern and are looking for a break lower. PLUG is weird though…
The candles formed this H&S pattern in July but instead of breaking below the “neckline” of the pattern and continuing lower, the candles gapped up and moved higher. This is a great reminder that using charts and technical indicators can help put the odds in your favor, but nothing is guaranteed.
Keep an eye on the $25.30 level for PLUG moving forward as this is the current “neckline” and a break below could see a steep sell off. You heard it hear folks! Despite the prior H&S pattern leading to a $10 rip to the upside, I think this time the candles give it all back…if we get the break.
NEXT WEEK: Trading MARA, SHOP, CCL, XOM
Interesting set ups for crypto and energy as keep support levels are being tested. SHOP and CCL are fighting against the trend lower. All of which I’ll outline trade ideas and trading levels for and make available to C&C Members, followed by a full recap in next week’s A Trader’s Education Newsletter. Be sure to subscribe!