In Search Of A Short Setup

David Frost // Swing Trading

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January 11  

Today we thought it would be a good idea to give some insight to one of the stocks on our watch list that looks to be setting up for a trade alert that will go out to our subscribers.

Below you will find the type of detail provided to subscribers when we issue a trade alert.  We like to give the group our thought process and rational so they can begin looking at stocks and charts the same way we do, giving them an edge on the markets.

BIDU is a largest internet search engine in China.  In short, it’s the Google of China.

BIDU is headed toward the 200 day moving average which it hasn’t visited since last summer on the daily chart.  Around the same pricing area, BIDU experienced significant resistance for several trading sessions last October.  When we spot two areas of price resistance, we look further to see what other analysis can be done to increase our chances of a high probability trade.

The broader market has been on the rise since the beginning of the year and should be coming into a cycle pivot date within the next week.  Normally, when cycle dates occur, the market reverses direction.  This adds to our case because BIDU will most likely follow the overall market direction under normal circumstances.

But wait, there’s more.

From the most recent high before the breakdown in price last August to the most recent low in December, the stock has retraced about 60% of the down move.  This is representative of a Fibonacci .618 retracement.  More evidence of a good trade setup.

If that wasn’t enough, the correction upward from the low in December looks like a text book Elliot Wave A-B-C move or correction with the larger trend remaining downward.  In an upward correction, this move is comprised of an upward thrust, pullback or retracement of the prior move, then a final thrust to complete the correction.

These and a few more nuances have convinced us we should be on high alert for the stock to move into the 200-day moving average at which time a short trade alert for our subscribers will be issued at a price around $115 per share.  The moving averages change each day as the market moves in price and time, therefore we don’t know the exact price until we get there.

The goal of this trade will be for at least a $10 move back to the downside in just a few days.  Getting back to $100 is a very good possibility.

Here is a simple chart of what we’re looking at:

BIDU Price Chart

Investors and traders should understand that there is money to be made on both sides of the market.  Sometimes we’re in a bull market, sometimes it’s a bear market and sometimes we find ourselves in a price range.  Either way, we don’t care.

We’re here to read the markets using all the tools we have available and provide solid information to our members for which they can do with it what they please.

 

About the Author

Trading and investing in markets is second nature to some, but a mystery to others. The goal is to provide a forum where everyday people aspiring to be part time or full time traders will learn how view markets differently and profit beyond their wildest dreams.

David Frost