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.

Citi Group Gartley Pattern - Update 5

We gapped up at the Open, filled in the gap and tested the 3ema. Then we reversed upward and closed over the previous Close. And we made a higher high and higher low compared to the previous trading day.

Even though we have a red candle body today, it was clearly a Bullish day. Definitely wanted to hold the position.

However, the Earnings Report (ER) is in 4 days. Our options should have increasing Implied Volatility (IV) due to the approaching event as well as the overall market dynamic activity. Option Gamma should also be increasing. These are Bullish for option pricing. But Theta time decay is also increasing, Stochastics are very overbought, and traders may want to sell ahead of the ER to capture their recent profits. These are Bearish.

So, while I seldom use Stop Losses on options, today I added a Stop Loss at break even on our position.

Citi Group Gartley Pattern - Update 4

Above is a wide view and zoomed in view of the Daily chart. We had a continuation day in our favor, which is good, but I'm becoming concerned about the overbought Stochastics. I mentioned it last time as well.

Our Target of 71.62 is on the other side of the 200sma. The 200sma could easily provide enough  resistance on its own to send us back down for a retrace before reversing back up. But combined with the Stochastics being overbought, its even more likely. 

This would be problematic because the Earnings Report is on 1/14/2022 before the market opens, which means we need to exit by the Close on 1/13/2022. A reversal could have us down significantly right when we have to exit.

So, considering this situation, I think I'll exit this position if we hit the 200sma instead of waiting for the .618AD Gartley Target. The 200sma at today's close is exactly 70.00. 

Citi Group Gartley Pattern

Both charts above are Daily charts. The top chart is widened out to see the Gartley pattern. My own research has proven to me the Gartley pattern has a fantastic success rate of approximately 75%. I define success as hitting the .618AD level before breaking the X point level.

The bottom chart is zoomed in to see the Doji Gap Up candlestick pattern made by today's candle and the previous candle. This formed on high volume. This is a very Bullish indication.

On the zoomed in chart, it also looks like we're forming a Fry Pan Bottom candlestick pattern. If we break out of that to the upside, that would be a very Bullish indication.

So, based on the above, I got a Jan 60 Call for $3.40. I know that Theta time decay is relatively high given that there's only 3 weeks left until expiration. To deal with that, I plan to turn this position into a Call Spread after a sufficient increase in the stock price. If I can sell a 72 strike Call option for $3.40 then I'll have a risk free trade.

The good thing about being close to expiration is that Gamma is also high. So if the stock price rises, the option value will rise quickly.

The Quarterly Earnings Report is due out Jan 14th at 8am ET. I plan to close this position before then. If the target isn't hit by the ER, then I'll sell the option on the afternoon of the 13th, which should enjoy a boost in Implied Volatility.

Since we have defined risk, thanks to using options, I'm not very concerned about a Stop. If I had the stock, I'd put the Stop just under the D point of the Gartley, or if I could afford the potential loss, a better spot would be just under the X point of the Gartley.

For the Target, I'm using the .618AD Fibonacci retracement level, which is 71.62.

Stocks of Interest - Criteria

 For me to be interested in trading a particular stock, I'd look to meet the following criteria:

• Traded on a USA exchange.
• Not pink sheets or Over-the-counter.
• Minimum 200,000 shares traded on a daily basis. The higher the better.
• Either options or the stock must have a reasonable Bid/Ask spread.
• Share price over $5.
• Infrequent gaps.
• Over 200 days of trading history.
• Next quarterly earnings report at least 10 days away.
• Optional: Longs are over the 50 DMA (Daily Simple Moving Average) and shorts are under the 50 DMA.
• Optional: -1 > Beta < 1. The closer to 0 the better.

Expecting WMT Bullish Reversal - Update 3

Normally I include targets in my posts but I haven't yet on this one. I'm really not sure yet but I do see some possible targets. Here they are in ascending order:

• 145.11) 38.2% Fib of the yellow range.
• 146.43) 50% Fib of the yellow range.
• 147.74) 61.8% Fib of the yellow range.
• 149.61) 78.6% Fib of the yellow range.
• 151.90) Trend line.
• 155.03) 127.2% Fib of the yellow range.
• 156.71) 127.2% Fib of the green range.
• 158.16) AB=CD 140.86+(152.00-134.70)
• 158.88) 161.8% Fib of the yellow range.
• 162.69) 161.8% Fib of the green range.

Of course, none of these are guaranteed. We could start tanking on Monday. But if I hazard a guess now, I'd say the confluence of the AB=CD at 158.16 and the 161.8% Fib at 158.88 looks good.

In addition to the confluence, if price is making a swing low here, then we're reversing in the middle of the channel we're in rather than the bottom of the channel. That would be Bullish.

Also, Stochastics are still oversold. So we have a long runway to the upside based on that. And, it has a slight upward slope over the past couple days. In fact, you'll notice while the Stochastics are sloping upward the past couple days, the candle lows are sloped downwards. That's a Positive Stochastics Divergence, which is very Bullish.

And on a fundamental basis, which I try to ignore, Walmart's quarterly Earnings Report on 11/16/21 was considered very good and analysts were surprised the stock went down. I'd guess it was a Wall Street manipulation to fill the gap. Also, I think the strong inflation we obviously have will increase traffic to Walmart for quite some time. If these fundamental reasons are true, they'll provide a tailwind to Walmart's stock.

But, I'm not confident at all about a target at this point, just an opinion we're heading higher based on technical analysis. This being the case, I picked a price range for a Vertical Call Spread that I thought would be within the up leg I think we're starting, and had an expiration date that gives us enough time for the price action to reach its swing high, far enough in the future to limit the Theta time decay, yet not so far as to limit the Gamma. As you know from the original post in this thread, I picked the December 145/150 for about $1.00 each.

Soon as I bought the options, I entered an order to sell them at $4.95, which represents the maximum valuation of the spread other than holding to expiration. 

So, the bottom line is we don't need an exact target on this particular trade, at least the way I'm trading it. We just need WMT to rise high enough over 150 such that the option spread reaches a valuation of $4.95.

Time-frames of Choice

This applies to technical trading in "normal" market periods. A common question I hear, and ask it myself when learning a new pattern or other setup, is "what time-frames does this work best in?". This is a fair question and if you don't get a helpful answer, here are my thoughts about picking a time-frame in general.

Too long and you increase your risk of cycles unrelated to your pattern and headline news.

Too short and you increase your risk of market manipulation and large orders. Relatively large orders would look like headline news and be easier to occur due to lower volume in short time-frames. A larger time-frame can swallow up and absorb the relatively larger orders.

So, its reasonable to think there's a medium term sweet spot. For me, its somewhere between scalping and swing trading. Specifically, I try to stay within a range of 3 minute to daily charts. My favorite time-frames are 15 minutes and 1 hour. An exception is the grains market, i.e. corn, wheat, and soybeans. I prefer the Daily chart for the grains market.

Sometimes a setup is on a time-frame where the proper Stop placement represents too large a financial risk. If you can't get that down through mini-contracts, position sizing, or options, then go to a lower time-frame to find another good, but closer, Stop placement that gives you a smaller financial risk.

Whatever time-frame you choose, be cognizant of scheduled news, such as earnings reports for stocks and agricultural (crops and livestock) or inventory (energy) reports for related commodities. Unless you have inside information, you have to prepare for a surprise, which means taking a hedge or exiting your trade.

DBX AB/CD - Update 8

The top image is from earningswhisper.com showing DBX expectation was $.24 EPS with an actual of $.28 EPS. .04/.24=17% beat. $.04 seems mild but it should allow our Bullish setup to continue, unless management says something bearish.

The top chart in the middle is a 1 minute chart showing the reaction to the ER release. The bottom chart is a wider view of the whole setup.

At about 15:45, before the ER release, I decided to sell the Apr 25 Call for $2.47 and buy a Feb 26th 25 Call for $1.26. This cut my risk in half, and if we got a positive report (which we now know we did), then the much higher Gamma will give us more profit if the move is big enough such that the higher Gamma will overcome the higher Theta.

Doing this resulted in a small loss on the April option:

2.47-2.96=-$49.

Keeping the target the same at $29. 

Now that we know the ER turned out well, I may buy a longer dated option when we sell the Feb 26th option, if we haven't hit the target yet and the risk/reward makes sense.

DBX AB/CD - Update 7

Well, the Quarterly Earnings Report is due out tomorrow after the market close. Today we closed right on the 8ema. I think today and tomorrow, and maybe yesterday, we're just going to consolidate until the Report. So Technical Analysis probably doesn't even matter.

At this point the big question is whether to hold the position over the Earnings Report. There are 3 possible cases. Earnings exceed expectations, a "beat". Earnings fall short of expectations, a "miss". Or, Earnings are close to expectations.

If we get a beat, and the stock takes off to the upside, then the greater daily pattern will be a J-Hook if you include the previous up leg, or a Cup & Handle if you just look at the recent dip since Christmas.

If we get a miss, and the stock takes a dive, then we have a Double Top formation on the Daily chart. 

If the Report meets expectations, then the previous pattern should continue on, which has been Bullish.

Normally, I don't like holding over ER's because they are a crap shoot. There is a method to calculate a statistical expectation. You look through the history of ER's and simply count the number of each of the 3 possibilities and calculate the percentages. I'm not sure if that actually gives you an edge or not.

However, in this case, we have a very bullish technical setup, which you can argue is an indication the market believes we won't get a miss. Two out of the three possible outcomes are bullish. Also, if you look at the price range the past 4 months have covered, its like 18 - 25, which doesn't look very dangerous. In addition, our position is in long options, which have a fixed maximum loss equal to the cost of the options.

So, given the specific circumstances of this particular trade, I'm leaning towards holding the position over the Earnings Report tomorrow after the market close. I'll decide near the Close tomorrow, after having seen the day's price action.