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The Double Top Play - A Rally into Resistance


Trading Strategy: The Double Top Play: A Rally into Resistance. CYMI has rallied very impressively over the past three days; however, this rally has brought the stock into an area of major price resistance. While another up day could very well materialize, the prior high formed in late November will serve as a troublesome area for the stock.



chart courtesy of Mastertrader.com

Tip: Prior highs represent areas of pain for those who bought near the high previously, only to see the stock decline sharply before finally rebounding. The battered traders who suffered through the long wait in stock to get their money back are extremely likely to sell now that the stock has revisited their initial entry area. This is partly why prior highs often serve as major price resistance, which sets up the much talked about double tops.

The Play: Look to sell short once it trades below the low established in its first 30-minutes of trading. Once entered, place a stop $.25 above previous day's high or above the day's high, whichever is higher. Note: Keep in mind that a gap up at the open will not necessarily invalidate this play. A gap up will be viewed as a "last hurrah" move to which you can apply 30-minute sell rule. A gap down, unless it is too excessive, will also only confirm expectation.

Objective: A $2.50 plus move back toward the stock's 20-period moving average.

Play Review:

CYMI hit 30-min. low entry and immediately reversed direction to trade back above the day's high resulting in a $1.86 loss. This has been the type of intra-day volatility within the market at this time.




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