Trading stocks is a lot like reading the faces of the people we interact with day to day.
Unfortunately, much of our interaction in modern times is confined to emails, text messages or phone conversations. Yet despite all of this, nothing truly beats that one on one, in person, eye to eye type of engagement.
As traders, when we evaluate a stock's chart and its underlying price action, what we are really doing is engaging with the stock one on one. We obviously can't sit down and have a cup of coffee with the stock, but what we can do is block out all of the noise, all of the hype, and try and gauge what is happening on the screen as we see it, not as we hear it.
“I will find mistakes in the lines of your face when you say my name, because when this ends I’ll want someone to blame”
In particular, through technical analysis, what we like to do is focus on the lines on a stock's chart. Specifically, we look at support levels, resistance levels, and weekly moving averages as they tend to be the most helpful when swing trading on an intermediate time-frame.
This type of data provides us with a foundation to work from when we consider what our trading plan will be in approaching a particular stock. Certain chart set ups, if the lines match up with our trading strategy, will call out our name. They are like the lines on a person's face - in recognizing them, we can get a sense for the stock's underlying strength or weakness.
For example, when we analyzed Z last month, we saw that the $140 level was a key support; when selling pressure ensued, and that support line broke, the stock sold off to the low $120s.
In our last post, we looked at the making of BITA's climax run. Today, we follow up on that discussion with a more in depth chart analysis that considers the big picture by incorporating the weekly moving averages.
BITA: Extended Above Weekly Moving Averages
$BITA : Bitauto Holdings Limited
BITA's summer rally truly picked up steam in the beginning of June, when the stock was trading at just over $40 a share.
The 10 week Moving Average (purple line), currently at $58.05, has supported this rally over the past several months. The last time the stock pulled back to this level was in early July.
Above the 10 week Moving Average, we have also noted the 5 week Moving Average (blue line), currently at $67.38. BITA has pulled back and managed to close above this level multiple times over the past few months.
However, as we can clearly see, the stock is now extended well above both the 5 week MA and 10 week MA, closing yesterday at $82.23.
The week is still not over, and it remains to be seen how BITA will finish by Friday, but our climax run thesis persists from an intermediate time-frame perspective.
Over the longer term, the 40 week Moving Average (light blue line) is still rising, so any pullbacks in price for BITA coinciding with consolidation would be potential buying opportunities, assuming the trend higher continues.
Chinese internet stocks experienced some notable selling pressure yesterday, despite new highs being made in QQQ, so this may be a sign that traders are looking to cash in on the recent gains in this sector. Let's see what happens.