09.26.2022
Key Takeaways
Our thesis of TLT continuing lower to test its 2013 lows of $101.17 has not been invalidated. We have an unrealized profit of $3.18 per share. We have lowered our buy-stop to $109.25.
Our thesis of CE continuing lower to test $83 has not been invalidated. We have an unrealized profit of $9.93 per share. The trade management here is twofold, lower our buy stop to $108 and take profits on half of this position.
Our thesis of BAX continuing lower to test $49.50 has not been invalidated. We have an unrealized profit of $2.48 per share. Our buy-stop remains at its original price of $60.75, though we have taken profits on 2/3rds of our position expecting some near-term mean reversion.
With 3 trades going our way, it is important to keep our illusion-of-control bias in focus by remembering that in markets, outcomes are determined both by skill and by luck for small interests.
Trade Management
TLT
On September 3rd, we analyzed the ETF TLT. Click here to read that. One of the key takeaways was, "Despite the message from the monthly and weekly charts, the daily chart does offer a reasonable reward to risk if we are interested in taking a small starter position." That is exactly what we did.
With our trade showing a profit, on September 11th, we tightened our buy-stop ahead of the FOMC press conference. Click here to read that.
Since then, price has maintained its slow and sideways grind lower. Our thesis remains valid, price should trend lower towards its 2013 low of $101.17. Below is the daily chart. The red vertical line highlights our entry, and the yellow horizontal lines shows the progression of our trailing stop.
We see an unconfirmed momentum divergence developing, but this is not cause to remove the trade. We were filled at $108.88, so with price at $105.70 we have an unrealized profit of $3.18 per share. We have lowered our buy-stop to 109.25.
TLT Daily. Click to enlarge.
CE
On September 18th, we published Two Potential S&P 500 Short Ideas. Click this link to read that. These ideas were generated from a relatively complex scan of the S&P500. The scan was searched for stocks trending lower with a rally into a declining 20-day moving average.
Regarding CE, I wrote, "Celanese Corp, CE, has broken below a trading range on the daily chart, though with a positive momentum divergence. Since the weekly chart argues for continued downside momentum, perhaps the warning clouds of divergence will dissipate without much rain."
We entered short with a market order at the open on 09/19. Our fill price was $100.93. Price fell sharply into Friday. Price closed at $91. That leaves us an unrealized profit of $9.93 per share. The trade management here is twofold, lower our buy stop to $108 and take profits on half of this position. While our thesis of price ultimately heading lower to test $83 remains in place, the hammer-like candle and the sharp flush lower speaks to some potential mean reversion ahead. If/when price rallies, we will consider increasing our position ahead of another potential move lower.
CE Daily. Click to enlarge.
CE Weekly. Click to enlarge.
BAX
From that same September 18th publication, Two Potential S&P 500 Short Ideas, I wrote, "Baxter International, BAX, has set up nicely on the daily chart while the weekly chart shows some additional mean reversion might be in order before BAX continues lower."
We entered short with a market order at the open on 09/19. Our fill price was $57.89. Price tumbled lower and closed last week at $55.41. That leaves us an unrealized profit of $2.48 per share. Price has not printed a higher-low, so our stop remains at its original price of $60.75.
On Friday, price rallied from its demand line. Using the strictest definition of trend, if price does not form a lower-low below its early September lows the down trend has been invalidated. While this is true, a close above the $60.75 area is what I am looking for instead. In other words, based on this chart and the weekly, some mean reversion here might occur before price prints a lower-low. This is why we took profit on 2/3rds of this position, with the idea to add those 2/3rds back should price rally back to its supply line and then turn lower again. Looking at the weekly chart, BAX is an excellent reminder that price can remain oversold, and a reminder that oversold is not a reason to expect immediate mean reversion.
BAX Daily. Click to enlarge.
BAX Weekly. Click to enlarge.
Conclusion
While we have unrealized gains on all three of these trades, and have taken some profit and/or tightened our stops on all of them, we have to keep our illusion-of-control bias in check. For market participants of our size, this means remembering the outcomes of our positions are determined by both skill and by luck .
As always, thank you for reading. This article is for educational and informational purposes only. The author may or may not have a position in the securities mentioned. Read our full disclaimer here. Please reach out with any feedback or comments. I would love to know if you agree, disagree, or don't care at all. Louis@eastcoastcharts.com
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