DAG (Agriculture)

Touching trendline.

DAG 3X Reversed

EDC

Another possible touching of trendline in a megaphone pattern. Again it's a non reversed pattern. I'm not sure about these. They seem just a little far fetched. Touching the trendline seems to occur a little too often recently but maybe it is just a sign of where we are in the market overall. And I don't think the supprt trendline is symmetrical enough. there is room for it to move up towards 35. I might make a bet if it goes a little further.

DRN

I usually like my megaphone patterns on reversed charts (meaning the megaphone pattern turns up when you reverse the chart from the underlaying market as is done in Bear ETFs) but recently I've traded the megaphone pattern in FXI that is a non reversed chart and now I think DRN looks tempting as a touching of trendline play.

China (FXI) Update

Despite the big moves everywhere nothings really changed regarding the outlook for FXI. It has now touched the megaphone pattern trendline two times. This should be a very good short candidate from here.

INP and DUST update

I try not to care about macro events and FED decisions etc. I wan't to be purely technical. So I just conclude that for whatever reason a bunch of charts had an interesting day yesterday. In the case of INP it completed a downward move comparable to the last leg up. So what's next? While it's not possible to know the exact shape of the supprting floor for the megaphone pattern of INP it can at least be estimated to be somewhere in either of the two concave lines drawn on the chart below. (The chart is 3X reversed) It's possible that the momentum will push the chart even lower put pretty soon we should see a bounce and a crawl up towards the trendline. I pointed out two possibles scenarios. Both are the same move, it's just a matter of scale. The point is that soon a bounce towards the trendline should be expected. It could be played both on the up move before the trendline is reached and on the downmove after.

Regarding DUST, a bounce towards the trendline is what just happened. But personally I got greedy and wanted to get in at the last minute so except for an initial small position I didn't make much money on this latest move down. I thought the bounce would go just a little bit further up at the 40 level.

After this latest fall in DUST I don't have any read on what DUST is going to do next. The megaphone pattern is finished and I have to greatfull that it was a predictable and profitable pattern. There could be a second attempt towards the trendline but it's nothing I'm going to bet on. If there is a second attemt for the trendline it would be as a new megaphine pattern starts. It's possible that happens, especially considering how big the latest megaphone pattern was. Then DUST is very tradable again, but for not I'm just going to keep my small short position at least for a few days longer and continue to look for megaphone patterns in general.

Exiting India ETF and exits in general

I write a lot about entering trades and not so much about exiting trades. That's because exiting is much harder and I haven't focused as much at theories for exits as I have for entrys. I regularly do blog posts when I enter trades and then do not bother to post when I exit. I'm not as sure about the exits and quite often I'm happy with getting some money out of the trade and then forget about it. But with the megaphone pattern (my favourite) there are some hints when it might be a good time to exit a position.

The megaphone pattern is a series of increasingly larger spikes, usually set on a concave supporting floor. Now please excuse the artistic quality of the illustration you are about to see.

Once the chart breaks the supporting floor it tends to look for a test of this floor from below, smash in to it and head further down. My preferable way to play the megaphone pattern is to short what looks to be a big spike. 

A typical example of this is the post i did August 28. On ordinary stocks and ETFs I search for the megaphone pattern by reversing charts and magnifying the daily movements 3X so the chart mimics the 3X daily leveraged ETFs where the megaphone pattern can be found frequently. So 20 days later the 3X reverse chart of the INP looks like this:

So the question for finding the right exit is where is the chart in relation to the support floor. 

Are we here?

Or rather here?

I would argue something close to the latter since the floor line is more concave and symmetric. So there is a high likelyhood the support floor has been broken and the latest spike has almost gone all the way down as it first had spiked up. There is still a high likelyhood that the symmetry of the spike will be completed and that it will move down to the same level as it started before moving up. There is also a high likelyhood that this chart will test the support floor sooner or later. With this in mind we have definetly entered the exiting zone of this ETF. While a few more percents might be made I took the money today and decided to exit INP with a decent profit. But keep in mind there might soon be a second chance to make a trade if there is a test of the support floor coming.

China (FXI) Update

FXI is getting increasingly vertical near the testing of resistance of a previous megaphone pattern floor. I will continue to add to the short position today if the turn doesn't come. Allocation of portfolio will creep up to 25-30%.

DUST Accumulation

I'm rethinking my DUST accumulation plan. I think the likelyhood of DUST creeping up towards the 40 level is pretty high, which was my original thought. But because of the hard to borrow situation of DUST stocks I am going to risk not accumulating so many short positions between the 30 to 38 level and increase the volume around the 40 level instead. The risk compared to the original plan is that I won't accumulte any large position if it turns before the 40 level. The upside is that I don't risk as many stocks in a forced buy in if they are not available for short sale any longer. The other possible gain is offcourse that I will accumulate at a higher price the further I wait.

The stars and the moon are in line over the Chineese continent

Well maybe not, but the signal I'm seing is that in China (FXI) a megaphone pattern is testing a broken trendline. That usually doesn't end well, so I'm putting some money behind this guess. for now a portfolio allocation of about 20% right away. I'm both short FXI and long FXP. There is not much room for accumulation at this point because the chart seems near the trendline. Maybe the price could still move up a few percent and I might increase the size of the bet but I think it is pretty close to a turn. One thing that makes me a little cautius though is that I usually only see the megaphone pattern in reverse charts, and this is a long chart. But the pattern looks pretty clear so I'm taking my chances with this one but I probably won't hold on to it for long.

FXI

Anatomy of the megaphone pattern (And pre-week update of interesting charts)

I would categorize the megaphone pattern into four different phases. 

1. The building phase

When the chart already has performed one or two spikes and seems to be preparing for another one. This is not a phase I trade as it is not at all certain that a bigger spike will follow but it is the phase that raises awareness of possible future spikes coming.

Here are some current examples of charts in the building phase:

DRV

BZQ

EDZ

SMK

2. The spiking phase

When the chart is spiking in a megaphone pattern. This is the most tradable phase since it can be expected that a spike when done in the context of the megaphone pattern is not sustainable for a long time.

Currently I can't find any chart in the spiking phase.

3. Coming down from a spike

When the chart is coming down from a previous spike in the megaphone pattern. This is a phase that when done right a position should already be taken. When the spike has come down sufficiently (a subject that needs further discussion) it is time to exit the position.

Here is a chart coming down from a spike:

INP (3X Reversed)

4. Testing a broken megaphone pattern trendline

A megaphone pattern has a usually concave support floor that acts as resistance once it gets broken. The is a second tradable opportunity in the megaphone pattern since that trendline has a high likelyhood to hold. These trandlines can also come at multiple levels.

Here are some charts that have broken the megaphone pattern trendlines and have either tested or are creeping up to test the trendline, or both.

DUST

KOLD

FXP

BDD

It is possible for a chart to be in the last phase of a previous megaphone pattern while at the same time in one of the first phases of a new megaphone pattern. Once a trendline has been broken a new megaphone pattern can develop that still respects the previous megaphone patterns trendline.