Pick Your Spots Carefully

While I wont post charts on the major indices, they are approaching old levels of support that I am anticipating will behaving as new levels of resistance. These are 740 in the S&P, 7100 in the Dow, and 13.80 in the NASDAQ. That being said, I saw a lot of interesting patterns today in the market. Some are patterns on the verge of breaking out, some broke out today, and others broke out already and are retracing just a little bit. Here are a couple examples. ASEI broke out today from a bearish flag pattern. I layed out my trade a little bit in a comment on my last post. The key here is that I think you can still enter this trade early tomorrow before it truly begins its run (its a short trade by the way...buying puts may also worked although I havent looked at options for this stock). While flag patterns typically move a similar amount to the pole of the flag, i have a hard time believing this stock will go down $20 on this next move. Instead I will fall back on my expectation of this moving 20-25%. That still means roughly 10-15 dollars.




BLL is an example of a bearish breakout that is retracing and is providing an entry point for a short position. I entered this trade on the breakout, but the current price also provides a good entry point. Key to this is the area of support it found late last week/early this week around $37. If it breaks through this area the stock could be in for very nice run down. Conversely, you know you are wrong on the trade if it breaks above new resistance (or previous support from the wedge) at around 39-40 dollar level. The risk reward in this case is about $2 risk to $6 profit. Very nice bet that myself and any casino would take anytime.
Finally, DNR provides a bullish case where a previoud breakout seems to be ready to pull back just a tad to provide a good entry point. $14 had been behaving as strong resistance dating back to October. As the stock eventually formed an ascending triangle and broke out on the 10'th. Now it looks to be ready to pull back and retest $14 as new support. A retest would provide a very good entry point for a likely run up to $18 (based on the ascending triangle). $18 also has acted as support/resistance in the past (dating back to at least a 3 year chart). You know you are wrong here if the stock falls and holds below $14 so I am going to set my stop just above $13. That is $1 risk for $4 profit potential. A nice profit:risk ratio.