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VisionCodeX
Jun 27, 2018 10:33 PM

SQ - Spotting Euphoria (EWT) Short

Block, Inc.NYSE

Description

People often ask me how I go about executing my short positions (SQ/FB most recently), especially when the company's fundamental story is solid.

I typically show them charts like this, where, as you can see, just by applying very basic technicals you can see that this stock (SQ) has a pattern of what can only be described as euphoric run-ups, followed by intense profit taking and shorts stepping in. I missed the first two short opportunities (wave 1/3) as I was patiently watching the price action. After seeing shares rally +1% per day in June and seeing the price action near the top begin to fade (wave 5), I entered a short (via puts) on 6/22 and am currently still in the trade.

I'm up ~145% as of 6/27/2018. Planning on closing this position when shares hit about $57-$55 (may close sooner depending on volume).

Long term, a company like SQ is solid, but I often say "watch out for euphoric run-ups, they end the same way every time". Just go check out a chart of AMBA or BTC.

The first idea published, just wanted to share some of my thoughts.

Let me know what you think :-)

Cheers!

Trade closed manually

Closed position this morning (7/2/18) - total gain of 103%. Gave some of the gains away, but very happy with the return. Markets look set up to rally short-term.

I still suspect some more weakness before earnings, at which time I will look at call options.

Comment

SQ has been on an epic run-up, but once again it's in overbought territory.

Just opened the 9/7/18 $85 Puts.

Comments
alexfeng
Your wave 4 retraces to wave 1 territory so that is an incorrect count
Wave 4 cannot overlap wave 1, except in diagonal triangles and sometimes in wave 1 or A waves, but never in a third wave. In most cases there should not be an overlap between wave 1 and A.
prognosis.nl/support/faq/principle/principle2.html
VisionCodeX
@alexfeng, Thanks. I know what you mean. However, I place little importance in the exact levels and place more importance in the pattern set-up because it's more of an art vs. science. From my observation trading over the years, I noticed that EWT is very subjective in nature - 10 traders will see 10 different things.

What's more important for me is recognizing the "pattern of investor habits" (which EWT tries to capture): in this case, those longs were nervous as shares were hovering at the ATH (natural resistance level). All it took was a little bit of selling for the bulls to jump ship.

I just took advantage of the "weak hands." For me, this way of thinking is far superior vs. relying on "all the indicators" to give me the "sell" signal.
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