Friday, May 27, 2011

Trade Update: JPM

We entered short JP Morgan at $42.75 and set our stops at $43.75. I must confess that I was surprised to see that I put in a full position, I thought we shorted only 50 shares and I wish that is what we had done. My original idea was to short 50 shares and then if solid break of $42 occurred to complete the position.

It wont make a big difference one way or the other since we are very likely to be stopped out soon. To see why take a look at the daily chart for JPM. Notice first why we shorted. It made a high of $48.36 in February, and then a lower high just under $48 in March and yet a lower high at $46.00 in April. A series of three lower highs screams short me and $46 would have been the place to do it.

The Monstrous House of Morgan has in fact given up all of it's gains for 2011 and has returned to support at $42.00. But just one look at the chart shows what strong resistance $42 was for most of 2010, which means you can expect it to be at least as strong of a support level. Furthermore the stochastic are bottomed out and just beginning to turn up. But the big thing is the 200 day moving average dma. Stocks usually reverse at their 200 dma's.

So, why are we in this trade? Simple, if it breaks it will break big. It could drop all the way to $36 before it even hits a speed bump. Notice the way the downtrend line came right down to the 200 dma and then bounced up to close at $42.45 without breaking the downtrend line. That is we have a down trend line intersecting a horizontal line and they can't both remain intact.

Do guess just let the market decide. Check your positions and be sure your stop is in at $43.75 or there abouts and let the market decide things for you.

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