"Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions."
Sun Tzu

Wednesday, November 14, 2012

Swing Setups: MS & AOL

I wanted to share two swing setups that are currently on top of my watchlist. Due to the currently mixed nature of the markets, I'm looking at both: the long and the short side.

AOL had a nice breakout after earnings. Of course, trading breakouts directly is not a high probability move unless associated news is game-changing. Statistically, most breakouts fail. A better way is to trade the pullback after frustrated smaller players closed positions and professionals took profits into the news.

AOL has lost almost 15% since the beginning of last week and price is approaching potential support levels. The trade at this point is to go long on a trend change on the lower time frame. $39 is the critical price level to watch:

Note that I'm already long AOL in the Covestor Model Portfolio since I'm trading the declining negative momentum, which is very aggressive.

Short MS
This is a classical "Anti" trend change trade (Adam Grimes for reference): an impulse move on November 7 after the election initiated the setup. Since then, MS consolidated in a tight range. Again, the trigger is a potential breakout on the intraday time frame. $16.3 is the level: