EOM Technical Tuesday 9.20.16 SPX “Heartbreak Hotel” WFC

News Flash.  Per yesterday’s post, Citi says it is time to buy European Banks. Is this a classic pump and dump play?  We will see.

Today was a whipsaw day leaving all three major indexes closing flat going into the close.

The upper end of our current SPX trading range at 2170 continues to hold along with Support at 2120. The Bank of Japan and Fed announcement news will be the main market driver tomorrow and maybe for the rest of the week.

When the Fed decides to raise rates, I will be looking for the beginning of a “market tantrum,” and a healthy pullback.

For this and other reasons, I expect to see increased volatility this month and/or in October. If I am correct, are you prepared with your Garden Growing candidates?

Today is “Technical Tuesday,” and I feature one of my popular strategies, the “Heartbreak Hotel.” I am using Wells Fargo (WFC) as our potential trading candidate.

Heartbreak Hotel

This strategy is designed to take advantage of panic selling but prevents emotional buying. It is for stocks that have sold-off or gapped down at least 10% but have the possibility to recover. It’s also designed to go long but, if the stock does not recover, consider playing the put side.

Only trade (optional) stocks with this strategy (no funds) – buy stock, calls, or puts. Only trade (optional) securities with volume over 250k per day that trade on a major exchanges-no pink sheet or OTC stocks. If trading options, price premiums with expiration dates 2 to 3 months out.

While the stock is falling, do not trade for ten trading days-period. Never consider buying until after the 10th business/trading day and “only if you see a Simple Simon Buy Signal.”

Q. Why wait ten trading days?
A. It takes a minimum of ten trading days for the emotional selling to end.

If going long, you must use protective stops with this strategy placed under any previous lows or below the Average True Range (ATR) percentage equivalent.

Next, let’s see how this works using WFCespecially with all the attention they have been receiving. So what will happen to the top management at WFC?  The answer is simple, follow the money and connect the dots.

If this happened at a local bank, the Bank President and/or CFO would already be in jail and persecuted at the highest level.  Million dollar PR firms and expensive lobbyists pull “a lot of strings,” of those in power.  Enough said.

Key Points on

1.   Top Box non-correlation timeframes are in the red ovals
2.   Pays a dividend
3.   Previous pullback amounts are noted
4.   Each pullback lasted around ten days
5.   CMF is now negative
6.   MACD Histogram is negative
7.   RSI and Slow Stochastics are turning up

It took hundreds of charts and several years to fine-tune my “Heartbreak Hotel” strategy. The more popular the stock, the longer it may take for the emotional selling to last.

Per WFC, it is around ten days since the last negative press began and the selling set in. Currently, the Senate testimony may affect the buying and selling action.
Let’s revisit WFC in a couple of weeks to see if more buying comes in than selling driving the price back to previous highs.

Enjoy your evening,

David O. England

Plan your work, work your plan, share your harvest! Philippians 2:3-4

This information is for Educational purposes only. It shall in no event be construed or interpreted as an offer or recommendation to buy or sell securities of any kind.

DAVID O. ENGLAND is the founder of the Eye on the Market-Training Academy and Associate Professor Emeritus of Finance. This column is presented for educational purposes only and is not intended as financial advice.

If you have a question or comment, contact David England at eyeonthemarket@outlook.com.
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