03/02/23
“Catching a falling knife” – the term conjures up black and white images of a 90’s infomercial actor opening a drawer and knives falling everywhere, or just failing at mundane tasks in general.
In life or investing, you don’t want to cut a hole in your hand and today I am going to show you how, without using indicators.
Today’s Before the Bell is part strategy, part trade idea on a stock that’s been a top mover in the energy sector over the last year…
I’m talking about Exxon Mobil Corporation (XOM):
First off, we need to establish how Support is little more than a fleeting concept that is one hundred percent relative.
I say this because it continuously changes and puts retail in awful positions.
The conventional wisdom says that you should buy at a certain price based on previous levels, but short sellers know this too…
Let’s get into it.
On the left, the white arrow is pointing to a red horizontal line. Ostensibly, this is “Support”.
But look what happened…
Traders who bought on the day that the share price fell to this area likely got stopped out the same day or the next since the “ideal” place to set a stop loss is under the previous low.
Oof.
Instead, you can use a strategy that many futures and commodities traders lean on…
If you notice the last candle to the downside, I’ve highlighted its range as it was traded through to the upside with strength.
What I mean here is that the massive green candle that printed two days later is nearly twice the size of the range… And below the highlighted area is where I would cut bait.
Oddly enough, that red line also marks the breakout from the range.
(What a coincidence…)
Is there a safer trade? Sure.
The gray boxes highlight candlestick ranges of trading sessions at pivot highs prior to running lower…
This is what’s known as a “Breaker Block” (credit to Michael Huddleston).
You’ll miss out on the exact bottom, but once the share price travels above this range without closing below it, the trade is good to go.
Now, XOM is trading inside one of these blocks and has yet to close below it although it has at least tested the bottom, briefly touching under by three pennies at $108.64…
If you’re long here, watch for a close below it.
From there, I’d go short.
This material is not an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed, and is to be used for informational purposes only. Any performance results discussed herein represent past performance, not a guarantee of future performance, and are not indicative of any specific investment. Due to the timing of information presented, investment performance may be adjusted after the publication of this report. There can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this communication will be profitable, equal any corresponding indicated historical performance levels or be suitable for your portfolio.
