To start, here is a weekly chart showing the October 2007 highs at $37.50 before getting crushed. The stock lost 60% of it’s value over the next 15 months or so. After being boring for a while, it finally got a little rally, but only back to the 2007 highs. Now that everyone is excited about it (92% bullish sentiment according to Stocktwits) – I think it’s an obvious fade:
So now that we know it’s something we want to short, it’s all about the entry and defining the risk. On Wednesday $MSFT
was able to temporarily rally above that key $37.50 level from 2007.
But as prices inched higher, momentum was already rolling over. Here is a
short-term look using 10-min bars. Look at the bearish divergence
between price and the Relative Strength Index plotted below.
We have an easy out. I can’t put a new
position on unless I have well-defined risk, no matter how much I love
the trade. In this case, I think you’ve got options. You can use
Wednesday’s highs as a stop or you can wait until we’re below 37.50 and
use anything above that as the stop. You can even use the Wednesday
morning pop highs in the 37.70s. It really all depends on your risk
tolerance and time horizon.
Easy trade. Right or wrong I can hold my
head up high knowing that we got a good entry point with an extremely
advantageous risk/reward ratio. That’s all I can ask for.
Please share this article
No comments:
Post a Comment