Hi all,
Here's an idea which is about capturing the possible continuation of price increase for pharmacy chain CVS.
1 Price for CVS has been steadily trending upwards, since price managed to break above $40.00 after 2012.
This trend took the price to as high as $113 in 29 July 2015. So between Jan 2012 to July 2015, CVS experienced a price increase of $73.00 over 43 months.
2 After reaching the $113 high on 29 July 2015, price went into a bearish retracement phase.
Price channeled lower from 113, breaking below $100 but managed to find support at around $92.
Subsequently the stock traded higher, hitting $104 on 04 Apr 2016 and maintaining the price above $100 for the whole of April, before closing at $104.85 on 9 May 2016.
The price action from Aug 2015 up to May 2016 is potentially a head and shoulders formation.
In this context, it means potentially the overall 5 month retracement phase from 113 to 92 is likely to be over, with the continuation phase underway.
A simple measure of the inverted Head and Shoulder height indicates that a possible target of $118, if price does a reversal breakout.
Projection:
We project that price will try to trade higher and aim to trade at the previous high of $113.00, if price is able to do a daily close above 106.00.
Entry Condition:
When price can do a daily close above $106.00.
The neckilne of this pattern is arond $105.00.
However there maybe some last ditch attempts by the bearish traders to keep the price below 105.00.
Therefore a close above $106.00, will be a safer entry.
In a sense you are "trading" off a bit of the risk reward ratio, due to a higher entry price, for more certainty of a profitable position.
Stop Loss:
Below 103.30.
The moment a breakout of a Inverted Head & Shoulder pattern occurs, price should never trade back below the neckline.
If price trades below the neckline, the pattern is rendered failed and a short squeeze of the bulls caught in the trap will likely occur.
Hence a stop below the 105.00 is proposed.
Please trail the stop higher to breakeven, if price is able to trade above 109.00.
Taking Profit:
Close 80% at around $113.00
Close 20% at around $118.00 or if price trades below 108.00, after reaching 113.00.
Should a breakout be successful and price trades higher, it is very likely that price will try and hit 113.00. and beyond.
This is purely behavioural for the market to find out what was the highest price traded and use that as a targeting basis.
Which is what trading trending markets is all about: reaching new highs and diving new lows.
Therefore it is quite certain, should the breakout happen, that price can hit around 113.00.
However there is also a possibility that price can trade above 113.00 and hit around 118.00, as indicated by the Inverted H&S height projection.
Hence we might consider closing 80% of the position, on a high probability target of 113.00 and leave 20% for the price to run further up towards the inverted H&S target.
Time Limit:
Close all positions if price is unable to reach 113 or higher by 01 Aug 2016.
Close all positions if price is unable to reach 118 or higher by 06 Sep 2016.
Have a profitable day~!
Here's an idea which is about capturing the possible continuation of price increase for pharmacy chain CVS.
1 Price for CVS has been steadily trending upwards, since price managed to break above $40.00 after 2012.
This trend took the price to as high as $113 in 29 July 2015. So between Jan 2012 to July 2015, CVS experienced a price increase of $73.00 over 43 months.
2 After reaching the $113 high on 29 July 2015, price went into a bearish retracement phase.
Price channeled lower from 113, breaking below $100 but managed to find support at around $92.
Subsequently the stock traded higher, hitting $104 on 04 Apr 2016 and maintaining the price above $100 for the whole of April, before closing at $104.85 on 9 May 2016.
The price action from Aug 2015 up to May 2016 is potentially a head and shoulders formation.
In this context, it means potentially the overall 5 month retracement phase from 113 to 92 is likely to be over, with the continuation phase underway.
A simple measure of the inverted Head and Shoulder height indicates that a possible target of $118, if price does a reversal breakout.
Projection:
We project that price will try to trade higher and aim to trade at the previous high of $113.00, if price is able to do a daily close above 106.00.
Entry Condition:
When price can do a daily close above $106.00.
The neckilne of this pattern is arond $105.00.
However there maybe some last ditch attempts by the bearish traders to keep the price below 105.00.
Therefore a close above $106.00, will be a safer entry.
In a sense you are "trading" off a bit of the risk reward ratio, due to a higher entry price, for more certainty of a profitable position.
Stop Loss:
Below 103.30.
The moment a breakout of a Inverted Head & Shoulder pattern occurs, price should never trade back below the neckline.
If price trades below the neckline, the pattern is rendered failed and a short squeeze of the bulls caught in the trap will likely occur.
Hence a stop below the 105.00 is proposed.
Please trail the stop higher to breakeven, if price is able to trade above 109.00.
Taking Profit:
Close 80% at around $113.00
Close 20% at around $118.00 or if price trades below 108.00, after reaching 113.00.
Should a breakout be successful and price trades higher, it is very likely that price will try and hit 113.00. and beyond.
This is purely behavioural for the market to find out what was the highest price traded and use that as a targeting basis.
Which is what trading trending markets is all about: reaching new highs and diving new lows.
Therefore it is quite certain, should the breakout happen, that price can hit around 113.00.
However there is also a possibility that price can trade above 113.00 and hit around 118.00, as indicated by the Inverted H&S height projection.
Hence we might consider closing 80% of the position, on a high probability target of 113.00 and leave 20% for the price to run further up towards the inverted H&S target.
Time Limit:
Close all positions if price is unable to reach 113 or higher by 01 Aug 2016.
Close all positions if price is unable to reach 118 or higher by 06 Sep 2016.
Have a profitable day~!