For those aggressive traders who enjoy fading strength – or calling potential turning points in price – Exelon (EXC) offers a potential “inflection against resistance” opportunity.
Let’s study this aggressive set-up and note the key parameters that will make-or-break a reversal play.
First I came across this stock from a stock screen I run which shows me the stocks with the most consecutive closes in the same direction (in this case, to the upside).
Note also that EXC had a stellar up-run at the start of 2014 with seven weeks of persistent gains ahead of a two-week pullback (retracement).
What makes this stock more compelling is that it topped the weekly scan list with six weeks in a row to the upside. That streak is called into question today with the reversal doji candle into resistance.
Note the falling 200 week SMA just under the $37.00 per share level near the 50% or “halfway” Fibonacci level from 2011 to present.
We can’t just plan for perfection – we’ll note an alternate thesis breakout could take price through $37.00 toward the 61.8% Fibonacci Target into the prior high near $38.00 per share.
Any pro-trend movement above $38.00 opens this stock into “Open Air” for additional gains, fueled in part by a short-squeeze from the short-sellers.
Let’s drop to the daily chart for additional levels to watch (and daily reversal candles):
We see multiple doji/reversal candles into the $36.00 per share resistance level as volume and momentum form negative divergences (lower highs as price reaches higher highs).
If anything, these combinations (resistance, reversal candles, divergences) suggest taking profits for those long the stock (swing traders) and waiting either for price to power-break through $38.00 or else preferably retrace lower.
The last time we saw a similar situation was the end of February 2014 as price scraped against the $30.00 per share level.
A better buy-opportunity developed after a logical retracement down to the rising 50 day EMA (note similar volume/momentum divergences with reversal candles into resistance).
For an educational note, reference January 2014’s swing low under $27.00 which was undercut with a lengthy positive momentum divergence followed by an EMA breakout (and positive cross-over in February).
Exelon (EXC) is a “profit taking” and “aggressive sell-short” candidate into current levels with stops placed according to your risk-tolerance above $36.50 or $37.00.
Initial downside swing targets include the rising 20 day EMA intersecting $35.00 per share and then potentially the confluence target of $33.00 (38.2% Fibonacci Level and rising 20 day EMA).
As with any candidate, there’s no guarantee of a stall/reversal into resistance.
Study a similar example that developed in Biogen (BIIB) where price initially sliced through overhead resistance to stall at a higher target.
As always, develop a dominant/logical (expected) thesis along with an alternate/unexpected (often ‘breakout’) thesis and manage any open trades accordingly.
Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning.
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade
Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).