W-BOTTOM: 9/11/10

When the market opened on Tuesday after the Labor Day holiday, the S&P 500 touched its down-trendline, becoming short-term overbought. The Dow was down 80 points during the first hour of trading, yet ENER was making a strong move in the opposite direction (Figure 12.19 ). I bought early, and after the stock rallied over 7 percent, I was content to pull the trigger and sell at the first whiff of weakness. I remembered [SpikeTrade co-founder] Kerry’s comment: “We continue to be trapped in a range-bound market that has been mostly conducive to trades kept on a tight leash. The NHNL remains range-bound; until we see more stocks breaking out to new highs, the market will chop day to day.”

Figure 12.19 ENER daily chart.

Daily characteristics of the trade set-up:   • W-bottom (A–B).   • Prices broke through and closed above the down-trendline (bar C).

ENER’s rise was an extension of a strong move after the earnings announcement last week. The weak opening on Tuesday enabled me to enter at 4.50. It didn’t take long for the shorts to take advantage of this dip to cover. In fact, they got very few similar dips thereafter to unload their shares. As a result, a powerful move ensued with nice staying power (Figures 12.20 and 12.21 ).

Figure 12.20 ENER 5-minute chart.

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