- Pull-back to a 10-day Simple Moving Average. This type allows you to capture a brief pause in stocks that are quite often in an extended Wave 3. While slightly higher in risk, they also let you catch some excellent moves that other pull-back strategies miss.
- Pull-back to a 20-day Exponential Moving Average. The 20-day EMA is an extremely popular line watched by enough technical traders to make this a very consistent entry point.
- Pull-back to a 30-day Exponential Moving Average. This is quite often a decision point for a stock. If it bounces off the 30-day EMA, you often have a nice move back in the original direction. If it breaks through and holds, you often have either a consolidation develop or a trend reversal.
- Pull-back to a resistance line. While I'm not a fan of breakout strategies (the percentage that form either a bull trap or a bear trap are too high for my taste,) I do like playing bounces off support and resistance. That's especially true if it's the first touch of that line after the completion of a different pattern or trend.
|ALK signaling short near EMA(30) and strong resistance|
- There is a double top (not labeled) that formed between December and May. The neckline was finally broken in June, and we've had a pullback to that neckline. The price target for that pattern is around $48.
- Since late April, the stock has been in a downtrend, and has completed 3 of the 5 impulse waves.
- Wave 2 was a flat correction, and Wave 4 is a zig-zag with a steep retrace of the prior wave. In fact, it's at about the 50% retrace level as of today.
- Waves 2 and 4 show alternation as required by Elliott Wave Theory.
- The candles over the last two days show a failure to drive the stock higher. On both days, the stock finished flat with a very long wick above the candle body. That's a very bearish indicator.
- There is overhead resistance right above the current level that was a very strong support level for well over a year. (Remember, support becomes resistance, and vice versa.)
- The price has stalled between the 20-day EMA and the 30-day EMA.
- Wave 4 has traced a well-defined A-B-C correction.
- Price has stalled just after penetrating a bearish trend-line connecting the start of the move with the top of Wave 2. (Remember, I'm not a breakout trader.)
There are some cautionary notes to factor into the trade:
- Wave 3 is shorter than Wave 1. This forces Wave 5 to be the shortest of the three waves.
- ALK releases earnings before the open on Thursday, 7/21. We'll want to be out of any trades no later than the close on 7/20.
- While not yet announced, we expect ALK to go ex-dividend around 8/13, paying $0.275 per share.