Scott Pluschau is a Contributing Editor to the ETF Digest.
Scott was a financial advisor with Citi. His technical analysis report on the Nasdaq Composite Index was recently featured by Dr. Marc Faber in his June 1, 2011 Gloom, Boom & Doom report. Scott earned his degree in Accounting and Taxation from Pace University. He lives in Long Island with his wife Ilona, daughter Olivia and new baby Henry.
The 20+ year Treasury ETF, symbol TLT is forming a potential “Exhaustion Gap” on the daily chart.TLT had a “Breakaway gap” back in July 2011, and has now had three continuation gaps since then. Gaps are areas where there has been no trade between the closing price of one day and the range of the following day. I have marked these on the chart below. Breakaway gaps are usually formed on a breakout from a consolidation area and are the beginning of trends.If these don’t fill quickly, you do not want to be on the opposite side of that trade and be stubborn about it.
TLT has had three “Continuation Gaps” on this daily chart of TLT and that is getting extended. Gaps tend to fill, such as the “Common Gaps” I highlighted on the chart. In full disclosure after today’s surge I took an entry level short position today. I am planning on adding to the position if there is a gap down tomorrow which would form an “Island Top” potential bearish reversal pattern.Should there be no gap down forming an island top in the near future, I will not add to the trade. Should it strongly move higher to above $123 I will close the trade and move on. The reward to risk here is favorable in my opinion using the most previous resistance area as an initial profit taking target of around $115 to cover half my position, which I marked with a blue trendline. This would be greater than approximately five to one reward to risk ratio on the initial trade. Who knows where my trailing half ends up, but I would love to hold on till that breakaway gap fills!
TLT gapped down and I added to the short at the open. It made a good run to try and fill the gap but it has reversed and is making new lows for the day. I would really like to see it close on the lows today. The volume on last Thursday was the largest in weeks, and this may be a sign of "distribution" after such a long and prosperous journey. All traders who bought last Thrusday and are still in their position are in the red and likely to be feeling trapped. Nobody wants to buy the high.
Scott Pluschau:
Comments (19)
September 23, 2011
Today's price action in TLT was very bearish in my opinion. We opened at yesterday's closing price and pushed higher but lost momentum, and it is closing below yesterday's range. This is similar to a "Bearish Engulfing Pattern" a reversal pattern in Japanese Candlestick analysis. But it is strongest when it gaps up above a small prior day's range, and then closes below the range as well, when it truly engulfs the prior day’s range and shadows or wicks on the prior days candle. I am looking to add to my short if TLT gaps down on Monday morning, and as long as that gap doesn't fill, it could be trouble for the traders stuck long up there as big volume accompanied yesterday's price action.
Scott Pluschau is a Contributing Editor to the ETF Digest.
The 20+ year Treasury ETF, symbol TLT is forming a potential “Exhaustion Gap” on the daily chart. TLT had a “Breakaway gap” back in July 2011, and has now had three continuation gaps since then. Gaps are areas where there has been no trade between the closing price of one day and the range of the following day. I have marked these on the chart below. Breakaway gaps are usually formed on a breakout from a consolidation area and are the beginning of trends. If these don’t fill quickly, you do not want to be on the opposite side of that trade and be stubborn about it.
TLT has had three “Continuation Gaps” on this daily chart of TLT and that is getting extended. Gaps tend to fill, such as the “Common Gaps” I highlighted on the chart. In full disclosure after today’s surge I took an entry level short position today. I am planning on adding to the position if there is a gap down tomorrow which would form an “Island Top” potential bearish reversal pattern. Should there be no gap down forming an island top in the near future, I will not add to the trade. Should it strongly move higher to above $123 I will close the trade and move on. The reward to risk here is favorable in my opinion using the most previous resistance area as an initial profit taking target of around $115 to cover half my position, which I marked with a blue trendline. This would be greater than approximately five to one reward to risk ratio on the initial trade. Who knows where my trailing half ends up, but I would love to hold on till that breakaway gap fills!
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