Harley Davidson HOG Builds Power Rally off Support

We’re seeing a number of stocks build similar patterns but I wanted to highlight Harley Davidson as a great example of a stock building a base ahead of a rally on positive divergences.

Let’s note the example and then plan possible targets now that buyers have revved up this stock from support.

Here’s the Weekly Chart which sets the stage for this week’s bullish reversal:

One of my favorite “Two-Step” Trade Setups is the

“Higher Timeframe Support with Lower Timeframe Divergence”

Mainly, we’re focusing attention on a higher timeframe key pivot point – in this case the $53.00 per share level which was a weekly pivot as highlighted and the rising 200 week Simple Moving Average.

HOG formed a couple small reversal-style candles into this level which added to the inflection point.

Shares have traded in an “Arc Trendline” distribution pattern since 2013 – we’re now trading up into the target of the falling ‘arc’ trendline and weekly moving averages into the $60.00 per share level.

For now, focus your attention (for this example) on the support pivot at $53.00 per share.

Now, let’s turn to the Daily Chart and see what momentum suggested about this pivot support line:

Price power-reversed off the $53.00 per share level in October 2014 and we were seeing another retest (touch) of this key pivot price level.

As buyers and sellers battled to hold – or break – the $53.00 level, a positive momentum divergence developed on the Daily Chart.

Here we see additional reversal candles forming into this support level – one more piece of bullish evidence.

Wednesday’s and now today’s session resulted in a powerful reversal up away from support toward the targets into $60.00 per share – well ahead of schedule.

For reference, aggressive traders had a spot to enter into the touch of $53.00 – with a stop beneath this level.

If you don’t want to play INTO support, let price “prove itself” to you with an initial rally.

In this case, price breaking the short-term price resistance and 20 day EMA just under $55.00 per share was the trigger-entry or catalyst to a breakout.

Divergences are like a spring that is coiling and building up energy.  When the spring – or energy – is released, price can snap-back and reverse quickly.

For traders, this is an aggressive reversal-style strategy that is higher risk than retracement (flag) trades, but it certainly has its place in a growing trader’s toolbox.

Harley (HOG) give us a great real-world example of this concept and set-up – and now outcome.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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