LOCKIT Application Example Part 4

01/12/2007: We have without any doubt a wave 5 extension.

Figure 2.10: CMS daily, we have a wave 5 extension and now trailing stop is broken.

 

In figure 2.10, correction wave 2 remained above our trailing stop level. Price went through the third Fibonacci target and made a higher top than the previous long term wave 3 top. We may now be at the long term wave 5 top. If this is the case then our actual Elliott count does not fit. Our count is at a wave 4 correction. So, we expect wave 5 above the top of intermediate wave 3 or above $17.0.

But, this wave 4 is now breaking the trailing stop. Shall we close or wait one more day? 

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There is solid support from the 50-days simple moving average, support from the lower side of the trend channel and the pitchfork and from a support line of a previous low.

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Figure 2.11: CMS daily, all indicators are in oversold territory.

Furthermore figure 2.11 shows that all indicators are in the oversold area. SVAPO en SVE_Bb%b_HA are already reversing. Good arguments to just put things on hold. However, we keep a stop at $15.8, just below the previous price support line or just a fraction below our trailing stop.

Figure 2.12: CMS daily, looking for the selling point.

02/02/2007: Our temporary stop at $15.8 was obsolete, price reversed immediately as you can see in figure 2.12.

If price moves further up past previous tops now, all waves 5 will come to an end. Best thing to do is to estimate a price target and close the position at this target, even considering that the last wave “v” could have another extension. Taking profit is the better thing to do. Another extension is unsure.

We have a few choices for closing the position.

• A first choice is reaching the first Fibonacci target at $17.5 from the projection over wave “i”. 
• A second possibility is closing the trade based on reaching the median line of the new sharp up pitchfork which is clearly giving direction to the latest price move.
• A third possibility is not really aimed at a price target, but giving away as little as possible of the profit from a top turning point. That would mean selling when the last sharp uptrend line is broken.

Just avoiding having to make a choice, we will trade right on the first possibility that is presented!

Closing sell

Figure 2.13: CMS daily, closing the long position.

02/06/2007: Oops, that was really fast!
Look how price reaches the third Fibonacci target and the median line of the pitchfork in figure 2.13.

We sell at a closing price of $17.63 minus the buying price of $12.52 makes a profit of $5.11 times 99 shares or a total profit of $505.89.

Now we have a total capital of $1,755.89 for the next trade in this stock.

We made a 40% profit

Short position .

02/26/2007: The day after closing our position there was a big volatile one day move. 

Look for the following trades in the "Capturing Profit with Technical Analysis" book and see how we made a profit of 67% on the starting capital in about a year's time.

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