JNJ No Tears Gartley Pattern - Exit

JNJ Daily at 9:46am ET

We opened gap up, then started to fill in the gap, but reversed back upward before even filling half the gap. This is quite Bullish, but there's a scheduled testimony by Federal Reserve Chairman Powell at 10:00am ET. That, plus the fact we're struggling a bit at the 50sma, led me to sell our position at 178.22, which is very close to the 179 Target.

At 9:47am ET I Tweeted:

"Sold the GARTLEY pattern near the 179 Target on JNJ. Want to be out before 10am ET Powell testimony."

The .618AD Target at 179.27 was subsequently hit 14:23 ET.

This has been a beautiful textbook trade. Everything worked as it should with very little heat or gray areas.

Summary:

Bought JNJ Aug 175 Call for 3.52 6/14/22

Sold for 7.95 6/23/22

795 - 352 = $443 profit.

795/352 = 226% increase.

443/352 = 126% return.

JNJ No Tears Gartley Pattern - Update 1

JNJ Daily

Great day for our JNJ trade. Got a big candle on big volume with a Close above the 20sma. We bounced off the 50sma, which is a concern, but we've breached it many times before.

We made a higher high and a higher low. The ADX made a bullish cross. Stochastics are still in the mid-range, so no selling pressure from that.

We hit the .5AD level, which is constructive, and we closed in the upper half of today's candle.

The Aug 175 Call option, for which we paid 3.52, had a high today of 7.60. That's better than a double. The voice in my head was quite disappointed when I didn't succumb and sell the option to capture the profits. Especially since I've had trades where I exercised discipline and held out for the target, but the chart reversed the next day and I ended up with much less profit, or worse.

But it looks like we only need one more green candle and we'll hit our 179 target. Plus everything looks bullish for this trade. 

So, bottom line, I held the line and held our position for another 3 points. Looking at the option chain, it looks like between today's stock close 175.74 and our Target 179, we'll get an average Delta of about 60. So, if we hit the Target, the additional profit would be approximately 3.25 * 60% * 100 = $195. 

Seems like holding the position is the smarter trade, albeit the more uncomfortable one.

JNJ No Tears Gartley Pattern

JNJ 6/21/22 Daily Chart

Went long with a JNJ Aug 175 Call on 6/14/2022 for $3.52. At the time, the stock was 168. I entered due to the confluence of the AB/CD, 200sma, and 61.8% Fibonacci retracement. But I got in early, without confirmation. We got that confirmation today, with a close above the 8ema.

Here's what I saw today:

• Bounced off 61.8% Fibonacci of the Gartley pattern
• Bounced off 200sma
• Bounced off AB=CD of the Gartley pattern
• Oversold Stochastics
• ADX Quit the Down Trend
• Trend Kicker candlestick signal
• Close over 8ema

Set the Stop to 167, just below the D point.

Set the Target to 179, just below the .618AD level of the Gartley pattern.

Maximum Risk is the full cost of the Call option, $352. But a better gauge for comparison to other trades is to use the stock value:

Risk = 168 - 167 = $1.

Reward = 179 - 168 = $11.

R:R = 11/1 = 11:1 which is ridiculously great. To be fair, the initial risk wasn't the current Stop. The initial Risk was 168 - 155 = 13, which would represent a bad R:R. 

Let's look at the R:R if I got the 175 Call option at the end of today, but based on stock price. Today's close for JNJ was 173.01:

Risk = 173 - 167 = 6

Reward = 179 - 173 = 6

R:R = 1:1 on this basis, which is considered too low. However, this trade is based on the Gartley pattern, which has a Win Rate of 75%. So, given the Win Rate, 1:1 is acceptable.

ZIM Zooming Down - Exit

ZIM 3min 13:30ET

Above is the 3 minute chart at 13:30 ET. You can see we had a gap up at the Open this morning. That led to a Kicker candlestick signal. These 2 indications are very Bullish. Then we drifted sideways.

Considering the Bullish candlestick signals, plus there is a major Federal Reserve announcement tomorrow 14:00 ET, and the remaining July 40 Put option was fully valued, I decided it would be a good idea to exit and reassess ZIM after the market reaction to the FOMC rate decision tomorrow. Sold the option at 13:23 ET for $1.05.

So, the bottom line on this trade:

Bought July 55 Put for $3.20, Sold for $5.90, Net +270

Bought June 60 Call for $0.60, Sold for $0.48, Net -12

Bought July 40 Put for $0.98, Sold for $1.05, Net +7

Total: $270-12+7=$265 profit.

ZIM Zooming Down - Update 3

ZIM Daily 6/13/2022

Today we opened gap down then retraced to fill in most of the gap. But today's price action was so bearish, we headed back down before we could fill the full gap.

We ended the day with a Doji candle but near the bottom of the range. Today's low was 47.68. The previous swing low (our B point in the AB=CD) was 48.21, which means we confirmed the AB=CD pattern by surpassing the B point. This is encouraging for our trade.

But, take a look at the Stochastics panel on the bottom of the chart. It is definitely oversold now (under 20). This is a concern as it provides a kind of pressure to reverse the price action. When Stochastics are oversold, I start looking for the next likely support level. I see it as the 61.8% Fibonacci level, which also coincides with a previous swing low on 10/6/21 at 42.14. The 61.8% Fib can be calculated as:

A-.618(A-X) = 91.23-.618(91.23-11.34) = 41.86

So, I changed the target for the new July 40 Put option to 42.50, which shades the previous swing low of 42.14 to account for slippage, Bid/Ask spread, and premature buying pressure.

Given the strong momentum of the current down leg, characterized by gaps and relatively long candles, I'd expect we'll ultimately get down near our original target at 29. However, it seems likely we'll get a bounce before then. I'd rather exit and re-enter later than ride out the bounce.

Also, there is a potentially big market moving event this Wed. 6/14/22 at 14:00 ET. The FOMC rate decision. It would be great to capture profits and be out of the market before then. That's a supporting reason to raise our target.

ZIM Zooming Down - Update 2

ZIM 6/10/22 Daily Chart

Yesterday's post included "it seems very likely we'll get a higher than expected inflation number. If we do, then that puts more pressure on the Federal Reserve to increase short term interest rates higher and faster. That should be very bearish for the market.". That's exactly what happened. I didn't watch our Put value continuously, but I did notice our profit got as high as $350. It may have been even higher.

Soon as the CPI Report came out at 8:30am ET this morning and the equity futures started tanking, I knew we didn't need our June 60 Call hedge anymore, but the option market didn't open until 9:30. So I entered a limit order to sell the option for at least $10. At 8:56am ET I sent this Tweet:

"CPI report was worse inflation than expected, as we predicted. ZIM should drop more. Entered order to sell the hedge for at least .10"

When the market opened at 9:30 our June 60 Call sold for .48, so we only lost .60 - .48 = .12 x 100 shares = -$12. Cheap insurance to protect our $590 position.

Near the Close, I had to make a decision. The voice in my head was insisting I sell and capture the profits while I can. I don't want to hold over the weekend and wake up Monday to a loss because ZIM announced they're being acquired (just made that up), or some other bullish news. What to do?

Today we formed a Doji candle below yesterday's low but near it. If, on Monday, we gap up a little at the Open and make a significant green candle, then we'd form a 3 candle pattern called a Morning Star. And since Stochastics are now oversold, this pattern would be very bullish. And volume has diminished. 

Also, we're sitting right on the 50% Fibonacci level. It would be normal for this level to provide support. However, if you look left, you'll see we already bounced off the 50% Fib on 4/25/22. Price could certainly bounce again, but often once you've paid your respects to a support level you don't need to pay tribute again.

All of the points above give credence to the greedy, paranoid voice in my head saying "sell, sell, sell!". However, this is still a bearish setup in a bear market. Chances are we will continue down on Monday. But maybe it would be a good idea to take something off the table. I thought about a good way to do that and came up with this: Roll down the option. Here's how I did that:

I sold our July 55 Put for 5.90. This captured 5.90 - 3.20 = 2.70 x 100 shares = $270 in profit.

Then I bought a July 40 Put for .98 x 100 shares = $98.00. If we lose that whole option, then we'll still have $270 - 98 = $172 in profits. So we "rolled down" the option strikes in our position from 55 to 40, and thereby captured some good profit but stayed short to benefit from any further drop in the ZIM stock price.

Our current balance is $270 - 12 = $258 in hard money profit. Plus we have a July 40 Put worth $98.

ZIM Zooming Down - Update 1

ZIM Daily

Today we gapped down at the Open and didn't even try to fill the gap. That's very bearish. Then we made another big down candle almost as big as yesterday and with almost as much volume. 

Given that this is the day before a big economic report, tomorrow morning 8:30am ET (the month to month CPI inflation report), makes today's big move even more significant, because you often see quiet and/or mean reversion type days before a big report comes out.

In yesterday's post, I forgot to mention the candle closed near the bottom. This was another bearish indicator. Today, we did it again.

Stochastics are still in the mid-range, so we have plenty of runway to drop further.

So, we continue to have a very bearish set up. However, the CPI report tomorrow morning is a craps shoot. The market could rocket upwards in response. And this could definitely happen even though we're in a bear market. On the other hand, looking at things fundamentally, which I try not to do, it seems very likely we'll get a higher than expected inflation number. If we do, then that puts more pressure on the Federal Reserve to increase short term interest rates higher and faster. That should be very bearish for the market.

Our July 55 Put was purchased yesterday for $3.20. Today's last trade was $5.90. That means our puts have increased in value by 5.90 - 3.20 = 2.70 * 100 shares = $270 profit. I had a very strong desire to sell and capture that profit. Would that be the best course of action? It would certainly be the safest and satisfy the loud voice in my head warning I could lose it all. But how would I feel if ZIM gaps way down tomorrow? Not so good.

I decided I wanted to participate in a likely downdraft tomorrow, which I'd miss if I sold out the position. However, there's a very real chance the market could shoot up tomorrow and take ZIM with it. So it would be a good idea to take a hedge against our short position.

I Tweeted out at 3:16pm ET that I bought a June 60 Call option for $0.60. If ZIM goes up significantly tomorrow then this Call option will increase in value, offsetting our losses in the Put option. Not necessarily 100%, but it'll help. Since the news comes out at 8:30 and the option market opens at 9:30, we'll just have to wait to liquidate the position.

Of course, if ZIM takes a flying leap further down, the Call option could become worthless before I can sell it. But our gains will far outweigh the $60 loss. Can't wait to see what happens tomorrow.

ZIM Zooming Down

ZIM Daily

Shorted stock ZIM this afternoon by buying a July 55 Put for $3.20. Quarterly Earnings is 8/17/22 before the market opens. I Tweeted this out at 15:39 ET.

Here's why I'm bearish:

• Kicker candlestick pattern
• Blue ice failure
• Negative Stochastics Divergence
• Close below 8ema,200sma
• High volume, Big bar
• AB/CD

A Kicker pattern is when you have 2 candles separated by a gap and facing different directions (Up and Down).

Blue Ice Failure I learned from Steven Bigalow in candlestickforum.com. Its when price comes up from below the 50sma, breaks through it but can't hold it, and falls back through the 50sma. Steve uses blue for his 50sma while I use red. That's why he calls it Blue Ice Failure.

To see the NSD, look at the downward angled thick, white, line segment in the Stochastics panel at the bottom of the chart. Then see the upward thick, white, line segment on the price chart directly above. Price was heading up while Stochastics was heading down in the same time period. That's Negative Stochastics Divergence and a bearish indication.

The AB/CD pattern has not been confirmed yet because it hasn't closed below the B point at 48.21. So I did get in early but I figured it was a reasonable decision thanks to all the other bearish indications. The measured move for where to expect price to go is the D point where AB=CD, which can be calculated by D=C-(A-B)=71.40-(91.23-48.21)=28.38.

The calculated D point coincides with the 78.6% retracement at A-.786XA=91.23-.786(91.23-11.34)=28.44. So this area makes a good target.

Also, if we get to the target, then we will have set up a Gartley pattern. So the Target is a great place to reverse our position.

Summary:

Entered 6/8/2022 15:13 ET, ZIM=58.91, Bought July 55 Put for $3.20

Target 29 (which is shaded a little to account for slippage, bid/ask spread, and an early completion)

Stop is just above the Kicker at ZIM=70

Using the stock to calculate the risk:reward ratio:

Risk = 58.91 - 70 = -11.09

Reward = 58.91 - 29 = 29.91

R:R = 29.91/11.09 = 2.70 which is great.