Michelle B submits: Yesterday, at 12:45, upon returning from a break, I noticed MATR moving down hard and fast on my low/high ticker; the whole low ticker window was blocked in red. MATR hogged the window completely -- there was nothing else, just that one symbol. MATR was screaming CAPITULATION. I checked out support on the monthly chart (the open of the very bullish, August 01 high-volume, long-tailed candle was at 24.43)...
... and weekly chart (the open of the August 21 less bullish candle at 24.84), and determined it to be in the range from 24.43 to 24.84. I could find no reason for the sharp decline.
On the 30 minute chart, the second measured down leg (and on bigger volume than the first leg down), was closed to finishing, and it was near my support range. The potential support range was about .40, so not narrow, but because such seller exhausted action, that is, capitulation, where all the sellers are out, results in a high probability trade, I entered at 24.87, with a stop loss at 24.47, and a target of 26, the first significant intra price level resistance. The lot size was smaller than usual, because of the wider stop loss. MATR made a long-tailed reversal candle at the seventh 30 minute bar, and it looked that it would reverse via a cup and handle formation. Long-tailed candles accompanied with high volume printed on longer intra time frames often signal that a sharp reversal via a cup and handle or a V-shaped bottom is happening.
Eventually it became clear to me from watching the one minute chart, that it would not form a cup and handle, because the handle was becoming a bearish stalling pattern, and I suspected that it would test the intra lows at 24.62. It did, undershooting the lows at 24.55 (MATR is what I called a brittle trader, its bid/ask spread can be tight and then all of sudden it is wide, more than .10, with such stocks they often overshoot resistance, and undershoot support). The visual pattern that I had expected no longer had the possibility of forming and a new pattern was unfolding in front of me, and I needed to use my pattern recognition skills to determine if it was going to be a pattern that would support a reversal. So I was getting ready to scratch the trade unless I could make out even the beginnings of a new reversal pattern. And I was particularly on the lookout for a bearish pattern, specifically a descending triangle, that could signal that MATR could do a third leg down.
I knew that the very bullish monthly candle open at 24.43 was significant support, and I could see that it was deciding to bump along a possible bottom, instead of doing a cup and handle reversal. So I relaxed, and let it to do its bump and grind. My position size was correct for the amount of risk I had determined, so I was not stressed during its carving out a possible bottom.
As 2 PM approached I was alert for a lullipop, a lull in volume, and then a ramp. Big reversal moves often happen at 2 PM. MATR broke out of a mishmashed triple bottom/reverse head and shoulders a few minutes later, reaching my target 20 minutes later, where my sell limit for the complete lot was waiting just under the target price. The offer was lifted easily, and I got a buck move in about two hours. The risk was .40 and the reward was 1.00, so 2.5 R.
A long daytrade based on intraday capitulation takes skill -- the biggest pitfall is catching a falling knife, distribution that is still in process.
thx for the insight... i love your reasoning and details. awsome post.
No reason for the decline? Didn't hear the news?
I knew about the rumor from searching blogs and message boards just before I entered the trade but I don't consider rumors confirmed news hence the wording in my post as there was no reason for the decline. Perhaps using the word reason was a bit sloppy. At the time of the capitulation yesterday AM, it was pretty vague. Yahoo lists the rumor of the contract loss after the close yesterday, I was out of the trade several hours by then.
Andrew, you are very welcome.
Great post!! I thought I was clever looking at weekly charts at times whilst daytrading! Very cool.
Zoomie, thanks. It is unusual for me to refer to the monthly in addition to the weekly for a daytrade. But I have traded MATR before, and from experience I know what a brittle trading stock it is--support and resistance is often a range, and not a precise pivot point.
Michelle and Michael - thanks so much for describing these trades...my eyes are opening more and more each day (and my trading is rapidly improving, moving from less loss to more gains)....and to Michael for posting them. You both probably know how much this helps us new kids on the block.
You're very welcome.