Wednesday, August 3, 2011

Example: $VALE - consolidation and break below whole number

$VALE had an interesting setup this morning.  Love these setups where the price gaps down, has a sharp move down, and then consolidates and goes sideways into a tight channel, just above a whole number.

In this particular example, the 5ema and vwap were also declining sharply to join the party. A break of the 6th red bar was the setup bar with a stop above $31.13.
VALE - 5min
Since everyone is looking for the break of the whole number just before shorting or exiting their long positions, getting in just prior to the break is usually preferred, although there's additional risk that it will never break.

As expected, there was a fade on the breakdown, likely from those buy the new low algos, but it didn't work very well for them this time.  And once they realized $31 became resistance, perhaps their exits also helped the stock move down even faster.
VALE - 5min partial day
Currently (10:35 AM ET), there has been a pretty nice move, and I would have likely exited 1/2 the trade at the $30.50 level.  Time will tell whether this ends up being a runner.

No comments: