Wang’s Happy Trading

As we’ve mentioned before, this year, we are going to do more an more “educational” posts. Optiondragon had just shared his Gap Trading Method. I thought I’d take the time to start a series of posts on “Indentifying Breakouts”. I will write these as individual case studies and use them to demonstrate what indicators to look for on the charts.

In January 2007, LVS reached a high of $109.45 and subsequently dropped to a low of $71.24 at the end of June 2007. From that low, it rose all the way up to a new all-time high of $148.76 in mid Oct 2007. That’s a “double” on the common stock in less than 4 months!!

LVS

Both WYNN and LVS behaved similarly during that time frame (from Jan. 2007 through Oct 2007). We actually trade primarily on WYNN. But, today I’ll use LVS as the case study because it has “clearer” signals for demonstration purposes. Here were the published “Happy Trades” made between Aug (breakout point) and Oct 2007 on these two stocks:
WYNN Oct 155 calls, UIPJK, at $5, +11.1% (partially out)
WYNN Oct 155 calls, UIPJK, at $5, +11.1% (all out)
WYNN Oct 160 calls, UIPJL, at $6.6, +3.1% (all out)
WYNN Oct 160 calls, UIPJL, at $7.1, +10.9% (partially out)
WYNN Sept 105 calls, UWYIA, at avg. $15.75, +392%
WYNN Sept 120 calls, UWYID, at $9.8, +25.6%
WYNN Sept 120 calls, UWYID, at $9.5, +22%
WYNN Aug 100 calls, UWYHT, $6.5, +62.5%
WYNN Aug 100 calls, UWYHT, $4.7, +17.5% (partially out)
LVS Sept 105 calls, LVSIA, at $8.4, +15%
LVS Sept 105 calls, LVSIA, at $3.3, +13.8%

Without the Technical Analysis indicators, the above chart may look a bit “ordinary”, just fluctuations in the everyday market. But, things can look pretty different, when we add on some indicators:

LVS

The 2 green lines going across the chart (at $90 and $110) are important levels. As mentioned before, $110 was the high set in Jan. 2007. $90 was a level that LVS held for a month between March and April, before breaking down to the low in June.

Point A: 1st Breakout (August 2, 2007)
At Point A, we see that LVS has been accumulating momentum since going above $80. As soon as it broke above $90, it catapulted to $110, the old high. Notice that at the break point, LVS caught the daily upper BB (Bollinger Band) and continued to ride it up until it hits $110. Also, notice the volume spike!

***It is interesting to note that on Aug. 6, WYNN reported blowout earnings. Did the breakout move on the chart precede the news? It sure did!!

Point B: Testing The Old High
At Point B, LVS tested the old high of $110 and came back down. Where to? To test that $90 level. After $90 is tested, it started accumulating upwards momentum again, until it got above that $110. Then, what happened?

Point C: Breakout #2 Above $110
Breaking above $110 sent LVS flying non-stop for almost 2 weeks. Eventually, it set a new all-time high at $148.76, more than doubling the June low of $71.24!! Notice the daily upper BB and the volume spike.

Summary: What To Look For?
1) Key levels that were set by historical prices; both resistance and support
2) Breaking of the key levels coinciding with catching the Bollinger Bands.
3) Volume Spikes
4) There are much more to note even just on the above chart. But, we’ll keep things simple, as there are more case studies to come; and, we’ll point out other indicators to pay attention to later.

There are, of course, many other Technical Analysis (TA) tools that will give you similar signals. Different tools “speak” differently to different people. It’s kind of like food: some people like somethings; others like some other things. I think it is important to find the TA tools that speak the loudest to you. Also, there are many, many factors that determine why and how a stock move. There are no sure methods. But, since human beings are very visual and our minds work in quantifying ways that require reference points and standards, Technical Analysis can greatly improve the probability of one’s investments and trades.

HappyTrading! ™