Monday, February 21, 2011

Technical Analysis: The Projectile Vomit Pattern

Today was a busy day. The garage was the culprit. First the light bulb blew out on the garage door opener so that had to be switched out. Then as I went back into the house, the door knob on the garage door just came off! Quality stuff. I went to Lowes for a new one and I have already installed the replacement.

On Risk Management
Silver is blowing up. Libya is falling apart but not before firing on protest marchers. Bahrain is in serious flux. Egypt is in turmoil. Oil is flying over $100 a barrel. Iran must be sick of being ignored by now. South Korean banks are having issues. Euro debt problems continue coming back like an annoying family member. In short, it may be a good time to check your own risk management profile. While none of this matters at some point it might. Don't get caught sleeping.

Technical Analysis: The Projectile Vomit Pattern
It is Monday night so I will be off to run screens and find some new ideas for the coming week trades. In light of how nuts things are right now, I will probably stay with what I have as of now and not buy new spots until I get a feel for how the week may go.

I wanted to show a technical analysis pattern I like to play when I find it; the projectile vomit pattern (the PVP). In the never ending melt up Bernank market this one is usually good for a nice pop. For an example I will use a stock I am currently long, PRSP (Prosperity Bancshares).

The PVP is noticed when a stock runs down to it's 50 day moving average and basically pukes forcefully and propels itself away from that level. The next time the 50 MDA is approached, an entry point is available for a trade. By definition you will be playing the second (or third, fourth) time this happens. The original move may be huge or medium (I don't bother with small moves) and subsequent replays of this pattern will usually be smaller in size. I am sure there are really cool names for this stuff and that it is a well known thing, but this is how I refer to it. On to the example.

Here is a Finviz Chart for PRSP. It is a daily chart going back to June 2010 (click any image for larger view):

Note that in November 2010 the 50 MDA was hit and the stock took off angry at that point. Without the lines, it is a bit more pronounced:

A Yahoo chart with just the 50 MDA plotted:

So we are looking for a stock that has shown the reaction to the 50 MDA as such:

PRSP came up on a screen of mine back around February 13 on an institutional volume screen. Looking over the chart, I saw the PVP occur back in November. What you need to have happen then is for a stock to actually go DOWN in this market to make another run at the 50 MDA. It is pretty rare these days. PRSP made the grade, just a little above the 50 MDA but close enough for a shot.

I bought in at $40.20 on February 14. The stock now has shown an echo of the November PVP and is now at $42.20 (+5%). This could still run higher and now this little ticker has the added fun of looking at a big double top at about $42! Should the PVP hold and a break of that double top holds, this thing could run. Of course it may well be turned back and go lower. That's life but this position has my interest.

I will be back later if I find anything worthwhile in my screens.

Have a good night.


getyourselfconnected said...

Well I thought that was a funny post!

Anonymous said...

If only the same could be said for a piercing fleshlight alarm when it comes to getting customers
to 'pull the trigger' less is often more.