$BMY

On Friday 8/28, a Morgan Stanley analyst downgraded Bristol Myers from equal-weight to overweight, and share prices fell 3.92 standard deviations (vs previous 20-days).

There was no bad news. The analyst simply thought the drugmaker's stock was trading at a premium price after recent gains.

To put that price drop into perspective, a 4 standard deviation price move should normally happen once every ~1000 trading years.

Looking at the chart, BMY broke out of a $18.75-$20.50 three month trading range in July, climbing to $23 at the end of August before the Morgan Stanley report.

Now, BMY has fallen back to $21.50 where a former top (and the 50-day EMA at 21.37) is serving as support. The RSI is 45, and still trading in the 40-80 uptrend range. Further, the RSI has made an intermediate positive reversal with the July 20 low -- the price is higher despite a lower RSI value.

I wouldn't be at all surprised to see BMY at $25+ by or before October.

$TBT Trade in Multiple Time Frames

Here's the daily chart for today's TBT swing trade:

Note price broke through resistance today in the direction of the main uptrend. At the same time, RSI broke through bearish divergence resistance. Prices often accelerate upwards when RSI bear divergence lines fail.

Last week we saw price make a long term positive reversal with the RSI on the daily chart while the RSI made long term bullish divergence support (see the red lines). That would have been an excellent entry point, and supports the long term trend analysis for this trade.

Dialing down to the 30-minute chart, after seeing price break through an old failed support line on the 30-minute chart and the RSI break through bearish divergence resistance, I decided to stalk entry on the 5-minute chart:


I waited for the Force Index(2) to go negative on the 5-minute chart, and trailed a buy stop which got executed at $53.20:

It didn't take long for the trade to turn positive. I moved stops to break even with an hour left in the day. Now we're free-rolling.

I will trail a fairly loose stop and watch TBT closely for signs of trend exhaustion at or near 4 Average True Ranges from its 50EMA [Keltner Channel (50, 4, 25)] at which point I will take partial profits and tighten my trailing stop.

$$ Anti-Chick = The Dude

With a hat tip to The Big Lebowski, The Dude combines features from Linda Raschke’s “Anti” system, and “Chick” Goslin’s 3-point system (with a sprinkle of Andrew Cardwell's RSI methodology).

The elements of The Dude are:

Trend Line = 50-day simple moving average
Confirming Line = 10%D stochastic line
Timing Line = 7%K stochastic line and/or SMA3 of RSI3

In addition, Positive and Negative Reversals on the RSI(14) are incorporated. Courtesy of Mr. Cardwell, Positive Reversals occur when, despite greater downward momentum on a pullback during an uptrend, price cannot make a lower low compared to a prior correction. Negative Reversals occur in downtrends when, despite a higher high in the RSI(14), price cannot rally to a higher high compared to a prior downtrend rally.

Here’s how the chart looks with some explanations and an example of a Positive Reversal:


When the Timing Line (which is short term momentum) starts to change direction, an entry signal in the new Timing Line direction is given in three cases:

1. The Trend Line is pointing the same direction, AND

• The Confirming Line is sloping in the same direction as the Trend Line, OR
• Regardless of its direction, the Confirming Line's location is above 60 for new buy signals or below 40 for new sell signals.

2. Regardless of the Confirming Line's location or direction, the RSI(14) shows a Positive Reversal as the Timing Line turns up for a new buy signal, or a Negative Reversal as the Timing Line rolls down for new sell signal.

3. Regardless of the Trend Line direction, entry is signaled when the Timing Line turns up (down), AND

• The Confirming Line stands above 60 (below 40), AND
• The Confirming Line points in the same direction of the new Timing Line direction.

In a later post, I’ll discuss money management rules for The Dude.