Welcome To The Dark Side Of The Charts

Dear Traders,

Why would you ever go short on a company you are trusting your life savings with? If they can handle your money why wouldn’t they be successful in handling their own?

These are both questions people on the outside might ask. But you, you’re on the inside track and ready to go short on any company the technical data tells you to.

That is how it should be.

Today we dove into bank earnings, which were quite surprising I might add.

How we expected Citi Group to play out.

Citi Group announced their earnings this morning. What an upset we saw, but not because they had a terrible earnings report.

Citi Group was set up for a bit of a trap door before earnings. We were all pre-sold that there was a ‘hurricane’ coming. Leading us down the assumptive road of poor earnings.

Leading up to earnings we had that thought in our head we see the touch and go of the 20- and 50-day moving averages last month the trend continues lower.

We then started to see the Bollinger Bands narrow significantly showing us a lack of volatility, usually followed by and accelerated move along the trend due to a rapid spike in volatility.

Typically we would see this as a good place to trade the stock for a quick profit shorting the stock. Everything lined up so perfectly.

I’m glad we didn’t….

What Actually Happened After Their Earnings?

After their earnings Citi Group actually surprised us with better than expected numbers. Their earnings report was expected to be much worse because of previous announcements. When people saw their numbers we saw the stock take a leg up by nearly $3 at the open.

With a reversal like this taking place and better than expected earnings you might think we should start thinking about being bullish on Citi Group…

This is where you get into the weeds of trading and have to really look past the first glance at the data to make a profit from a formation like this.

The Dark Side of The Charts.

When people first start trading using technical analysis there are lessons that are hard to teach, this is one of them. If you decided to be short Citi Group yesterday you may have thought you outsmarted the markets, everything was against this stock and you thought you had it all figured out..

This is objective proof that sentiment is important in the market.

If everybody thinks a company is going to report poorly and the stock is going to go down, what do you think the trends will start to show? The stock going down. This gives us a solid dose of hopeium in a trade that hasn’t fully formed.

Does this mean if you took a put before earnings you misread something? No, it just means you read the data saw a possible trade and took it thinking of the gains you had in store. That is okay.

There is still a lot of profitability in a put on Citi Group Especially if you are following my teachings and bought yourself some time on the option. This is a classic bend don’t break scenario.

Let me show you why.

How We Can Still Be Short On Citi Group

If you wanted to take a flyer on Citi Group, yesterday was your day the trade was at the close. You would have been rewarded handsomely today. We didn’t get into that position because the trade happened due to an unpredictable variable.

But if you look closer at that chart you’ll notice something, the 50-day moving average and the top Bollinger band are hovering right around that $48-$49 level. This means there is going to be a lot of resistance at that point, they will start to push back down on the stock this means there is still profit potential being short on Citi Group.

You did the work of reading the chart now you just have to take a breath and let the market come to you.

This is the type of insight my Night Trader members get all the time. You won’t win on every trade. You have to be okay with that to make any real money in the markets. If you want to learn to take those losers reconcile the trade and confirm youre money is in the right place using technical analysis you have to check out my Night Trader service, it is tried and true when it comes to proving the trade in times of uncertainty.

One last thing before you can start your weekend!

Today was Haiku Friday, if you were not there, you really missed out. We had quite a few people show up with some amazing poetry. I really like Haikus they are a simple form of writing that can also be extremely difficult if you don’t understand the rules of the road, much like trading technical charts.

There was one that Brandon and I picked to be the winner…

And that was… (Drum roll please)

We love our community you guys really love to have some fun and bring some levity to the end of the trading week. That’s exactly where we are, at the end. See you all next week for Monday’s opening bell.

Talk soon,

Chris Johnson
Quantitative Specialist, Penny Hawk