01/27/2022
From above the 200sma to below it in about 15 minutes…
That may have been one of the quickest fake-outs in the SPY that I’ve seen in a while.
We’re in a soft market right now and with investors ready to sell at the slightest hint of a bad signal, traders are sizing down and limiting risk — as we all should…
The only thing to do is trade what you see and keep things tight… or go short.
In fact, the best trade setups right now are short plays as positions fall much quicker than they rise…
Still, looking left to previous patterns can give us a clue as to what to expect if you’re a long-biased trader. They don’t always pan out exactly the way you may think, but patterns are studied for a reason…
Can Nuverra Environmental Solutions, Inc. (NES) repeat the past?
Let’s look at the daily time frame back to late 2020, just enough to capture the pattern we’re looking at today.
NES has a propensity for riding flat with the occasional spike due to a lower float, so I don’t know that I’d consider it a long-term hold, although holding a small position and waiting around for a run every so often doesn’t hurt either…
If you work the patterns, there’s always potential to at least catch part of the move.
I’m switching things up a bit here and have removed the On Balance Volume to add theTTM Squeeze indicator at the bottom of the lower chart…
This is one of my favorite indicators and I know Chris Hood is partial to it as asupplement to his “Paycheck Trade” strategy.
Key word: Supplement.
Without getting into the weeds, the indicator oscillates with momentum and lets you know when the Bollinger Bands have squeezed into the Keltner Channels.
Why is this important? Price compression.
A compressed area of price action typically signals that the stock is cooking up a sizable move. However, the direction of the move is the obvious unknown.
At the moment, the indicator is showing momentum to the downside and the squeeze indicator shows green rather than red, meaning there’s no compression. But what we do see is a potential bottom on the histogram… I’d wait for the purple to turn a lighter shade.
Two panes above it, the RSI is showing similar signs of a bottom as well.
Now, compare the two highlighted neon green boxes to the left with the current status of the stock’s price action… The patterns are looking a bit familiar and this time around, there’s higher volume.
Over to the right on the Volume Profile we can see that NES is below the Area of Value, so chances are that the stock takes a shot at higher ground soon…
I wouldn’t expect nearly the same gains as in the prior pattern considering the market environment and more short pressure. The overall trend, despite the recent parabolic jump in the share price, is still down.
But it’s tradeable…
Low risk. Nice reward.
Keep moving,
(Disclosure: I have no position in NES.)
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