3SOF

After the drop to 1.25 last summer, which was a Bear Trap/"fakeout" low, GNBT rallied out of a Descending Triangle (the first pattern in blue) to 1.77, just above the top of the Kumo (Cloud), which is about all you can expect on the initial recovery, after the miserable decline the stock had.

Where GNBT really began to look good (and, Tokyopua did a very nice job on it), was in the second pattern formation in late summer, which was an Ascending Triangle (highs of 1.77 - 1.78).

That broke out, the 8/22 days made a Bullish Cross, and GNBT was well above the Kumo (Cloud).

It's difficult to see on this chart, but I described it back then, GNBT went into another little Ascending Triangle, a "fractal" (repeating pattern) of the larger Ascending Triangle, in late September/early October.  Nice.

Overall, from June to early October, that's very a nice base, and both Ascending Triangle targets MADE with no problem. 

However, the base wasn't tha-at nice to warrant a rally of 116%, and the rally ended in a "Blowoff Top" at 2.70, just below Kumo (Cloud) resistance basis the weekly chart, which was at about 2.75 (Tokyopua might remember).  That was a nice place to take some, if not all of it, off the table.

Now, let's look at what kind of pattern/base we've got.

As far as a base is concerned, we've got next to NONE. 

Even though this is a BULLISH Falling Wedge, that pattern isn't real bullish, because we can see that as soon as the pattern breaks out at 1.85, we're AT RESISTANCE (the horizontal blue line, which is the 1.85 low of the October/November Symmetrical Triangle).

Then we've got the MAs that Basonista mentioned, right overhead.

Then we've got the Kumo (Cloud) right above that, currently at 1.96-2.20.

Bottom line: GNBT certainly can break out here, but the setup doesn't look nearly as good as it did last summer, when there was no nearby overhead price resistance.  Breakouts into immediate resistance can be difficult.

For that reason, I'd prefer to see how it does with that resistance, and wait and buy a pullback if it looks good, and if I can get it.   

Quote from: Melf Elf on January 15, 2007, 03:55:16 AM
For that reason, I'd prefer to see how it does with that resistance, and wait and buy a pullback if it looks good, and if I can get it.   

Here would be an example:

1. Go ahead and break out of the Bullish Falling Wedge, at 1.85.

2. Rally to/near 2.07, the December 14 "Gap To Crap" high, establishing the second data point of a neckline for a Bullish Inverse H&S Bottom.

3. Pullback, and establish support at 1.85, or at 1.77-1.76, which "should have been" support in December. 

4. A pullback to either of those would form a Right Shoulder, as long as the pullback doesn't go lower than 1.70, the December 12 low.  That's the low of the Left Shoulder, and the Right Shoulder should stay above that, and it should be on lower volume.

5. Then go up and breakout above the 2.07 neckline.

Something like that would look nice  (drawn in chart below).

Thanks, Melf.  Excellent analysis as usual, applause!  Man, you make it look so easy!

Quote from: Melf Elf on January 15, 2007, 03:00:24 AM
On your Fibonacci retracement, the rule of thumb is that a stock shouldn't retrace more than 61.8% of a rally.   I've seen some analysts use the more obscure .764 and .786 (I think) retracements, but I tend to like the 61.8%.  That's a lot of giveback, and any more than that doesn't look too bullish to me.

 

GNBT made a big mistake, not holding the 61.8% retracement level, near the 1.76-1.77  top of the Ascending Triangle breakout from late summer.  Or, not holding at 1.85, the low of the Symmetrical Triangle (pattern in red).

I agree with your fib retracement explanation.  It is interesting to note that sometimes traders will look at the halfway point between the 0.0 / 38.2 and the 61.8 / 100 levels for support and resistance (are those the .764 and .786 levels you mentioned?).  Those are drawn on the chart below with the dashed lines.  Those levels came into play after GNBT spiked to 2.70 in October and when it fell to 1.53 in December.  That tells me that traders are using the fib levels to determine support and resistance.  That also means we will probably see more problems at the 61.8 level GNBT is at now.

I also agree that dropping below the 61.8 level is very bearish for a stock.  You could consider this a normal retracement between that halfway point and the 61.8 level so it would not be surprising if we have hit resistance here and GNBT moves lower again.  We'll see how this plays out nearterm.  Obviously, news on GNBT's pipeline or on the bird flu will have an effect.

Quote from: Melf Elf on January 15, 2007, 03:00:24 AM
Unfortunately, we can't merge them because if GNBT ever becomes a 3SOF Pick again, this folder will go to the Members Board, so we need to keep the GNBT folder on the Stock Picking Board active, in case anyone wants to discuss it while it's a 3SOF Pick.

What I do, is if a stock ever has been a 3SOF Pick (run the Search on this Board first, to check), I always try to post in the folder on this Previous Picks Board so that all of my posts are in one place, and also so I can review the history.

Thanks, I understand.  I'll keep posting here and will look for previous picks for my posts from now on.

Quote from: basonista on January 15, 2007, 08:29:40 AM
Man, you make it look so easy!

Basonista,

Now, if only it were that easy, huh?!   

It's been so many years since I studied those Fibonacci numbers that I've forgotten the derivation of the .764 and .786 retracements.

From Metastock:

"Fibonacci Retracements are displayed by first drawing a trendline between two extreme points (i.e., a significant trough and peak).  After selecting Fibonacci Retracement from the Insert menu, a series of up to nine horizontal lines will be drawn at the Fibonacci levels of 0.0%, 23.6%, 38.2%, 50.0%, 61.8%, 100%, 161.8%, 261.8%, and 423.6%. 
[/quote]

76.4% is the inverse of the minimum 23.6% (added together, they equal 1). 

I can't remember the math for how that is derived, though, nor can I remember how 78.6% is derived.  I did a Google Search...Advanced Search...exact phrase....for ".764 retracement" and for ".786 retracement."

I got 141 results for ".764 retracement," and 956 results for the ".786 retracement," so there's plenty to read, if you're interested.

Fibonacci must have been the 'brainy" Bill Gates of the 12th Century.

Can you imagine him coming up with all of those mathematical relationships at all, let alone way-y back then?

I wonder what he could have achieved with a calculator and a computer?   

Some more from Metastock on Fibonacci:

"Leonardo Fibonacci was an important mathematician who was born in Italy around the year 1170.  It is rumored that Fibonacci discovered the relationship of what are now referred to as Fibonacci numbers while studying the Great Pyramid of Giza in Egypt.

Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers:

1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, etc.

These numbers possess an intriguing number of interrelationships, such as the fact that any given number is approximately 1.618 times the preceding number and any given number is approximately 0.618 times the following number.  The booklet Understanding Fibonacci Numbers by Edward Dobson (see Suggested Reading) contains a good discussion of these interrelationships.

See Drawing a Line Study for more information on drawing line studies.  See Fibonacci Arcs (Fibonacci Arcs), Fibonacci Fans (Fibonacci Fans), Fibonacci Retracements (Fibonacci Retracements), and Fibonacci Time Zones (Fibonacci Time Zones) for more information on the Fibonacci parameters."

Quote
I also agree that dropping below the 61.8 level is very bearish for a stock

Yeah, some of those .764s and .786s work out fine (I think mainly E-Wavers use them), but it seems to me that if a stock gives back that much of a rally, it just as easily "could" continue down, and give back the entire gain.

Just conjecture on my part, though.

Good accumulation today, It's building strength. It's going far higher.

The Flu is spreading.

http://www.msnbc.msn.com/id/16670775/

Merging some more GNBT threads with this...Yes, I found some more 

I will you today's closing chart while I'm in this thread.

Come Setravis every time I post you jump on me. Pull in the links.

I pick an 18 page link. I'm trying, give me a little leeway.

GNBT is ready for a break out.

Quote from: Draak on January 17, 2007, 05:56:05 PM
Come Setravis every time I post you jump on me. Pull in the links.

I pick an 18 page link. I'm trying, give me a little leeway.

GNBT is ready for a break out.

Draak, you posted to this thread today.
So that did not have anything to do with me finding another stray thread on GNBT to merge with this one.
So for the matter, I don't know what you are talking about or what you are trying to say.  I just so happen to find another thread to merge here.

Quote from: Melf Elf on January 15, 2007, 04:10:57 AM
For that reason, I'd prefer to see how it does with that resistance, and wait and buy a pullback if it looks good, and if I can get it.   

Basonista,

GNBT looks interesting.

Quote
Here would be an example:

1. Go ahead and break out of the Bullish Falling Wedge, at 1.85.

It went ahead and broke out.

Quote
2. Rally to/near 2.07, the December 14 "Gap To Crap" high, establishing the second data point of a neckline for a Bullish Inverse H&S Bottom

It rallied to 2.02, which "could be" alright for a 2.07...2.02 down sloping neckline.

Quote
3. Pullback, and establish support at 1.85, or at 1.77-1.76, which "should have been" support in December. 

It pulled back to 1.80, where it "should have" held on the selloff from 2.70.  1.803 is the .618 retracement of the 1.25 to 2.70 rally.

Quote
4. A pullback to either of those would form a Right Shoulder,

We're about right in the middle of the possible support areaa

Quote
as long as the pullback doesn't go lower than 1.70, the December 12 low.  That's the low of the Left Shoulder, and the Right Shoulder should stay above that, and it should be on lower volume.

The problem that we've got with using a print below the 1.70 (so, 1.69) as our stop, is the fact that, since the 2.07...2.02 neckline has a downward slope, we could get a little dip below 1.70, which still would have the right "look" of an Inverse H&S, with the shoulders also having a bit of a downward slope, if you see what I mean.

I don't like that, of course, because we're left guessing about where to put the stop.  1.68?  1.67?  1.66?  How low are we going to allow, for the extra little dip?

I have to think about that one.

Quote
5. Then go up and breakout above the 2.07 neckline. Something like that would look nice  (drawn in chart below).

That would be the idea from here. 

Something that I initially disliked about yesterday's close, but that I ended up liking very much: It was at 1.80, back inside the Bullish Falling Wedge, the top of which was at 1.8323 yesterday.

I never like a thing like that after a nice white candle up to 2.02 because it leaves us suspecting that we've got a false breakout on our hands, and we very well could.

However, TWO things that I liked about it:

1. It closed at your .618% retracement, which I mentioned

2. The 8-day Tenkan-sen and 22-day Kijun-sen made a Bullish Cross on the breakout on Tuesday, and they are bullishly positioned, at 1.81 and 1.80, respectively.  GNBT came back from 2.02, and sat down right on them at the close of 1.80, using them as support.

I never like to make excuses for a stock not acting properly, but I find those to be two acceptable reasons for a close back below the breakout.  It tells us:

"I'm now establishing the .618 retracement as support, while simultaneously finding support at the 8/22 Day Bullish Cross."

I like that.

But, now we probably have to go a little lower, to set up the Right Shoulder, when we would much prefer to see 1.80 BE SUPPORT

Maybe a quick down this morning, then a Bullish Hammer into a close of 1.80, or better?  Or, a rally right out of the gate?

Hmm-mm...

I'm probably going to play GUNBUTT today, with the hope that if the trade doesn't work out,  I only shoot myself in the foot, and not anyplace unpleasant.

I like your analysis, Melf.  I sold @ 1.97 on the spike up to 2.02 and will probably try to get back in around this support level again.  I don't have time to watch the markets this morning so I'm not sure how I'm going to do this yet.  It would be nice to see how GNBT reacts to 1.80 support but I suspect that it will do fine.  For that reason, I may just buy here but I'll have to think about it before going to work....

Edit:  OK, since I can't watch GNBT this morning, I decided to set a buy order at 1.70 to possibly catch an early morning dip. 

Kept my buy order at 1.70 so haven't bought yet.  Wish I would have seen this yesterday on the 30 minute chart:



Melf, that right shoulder would have been nice to see at 1.70 and I suspect we could still see it with such low volume on yesterday's trendline hit.  But, there is nothing wrong with a stock honoring it's new found trend! 

Quote from: basonista on January 20, 2007, 09:06:42 AM
Kept my buy order at 1.70 so haven't bought yet. 

Basonista,

I didn't buy it either. 

Quote
But, now we probably have to go a little lower, to set up the Right Shoulder, when we would much prefer to see 1.80 BE SUPPORT

I'll post you on the daily chart next.

1.80 wasn't support, so that blew the idea that GNBT went back inside the Wedge breakout in order to tell us:

Quote
"I'm now establishing the .618 retracement as support, while simultaneously finding support at the 8/22 Day Bullish Cross."

Nope.  It certainly wasn't telling us that, as I thought on Thursday morning, when our Inverse H&S scenario seemed to be going so well.

Quote
Maybe a quick down this morning, then a Bullish Hammer into a close of 1.80, or better?  Or, a rally right out of the gate?

We didn't get that, either. 

Quote
Wish I would have seen this yesterday on the 30 minute chart:

Aha!  Ye Olde Basonista Trendline, eh?   

Nice job, finding that! 

Scottrade on has 1, 5, 10, 60, Daily, Weekly charts, so I looked at your trendline on this 60-Minute chart.  It looks like we've got a little bit of room to tag in on Monday, but not much.

See that gap, where I've drawn the horizontal lines?  That's 1.73 and 1.72, so a quick down early in the session to one of those two numbers, for a trendline validation in the hourly chart, might do the trick.

Quote
Melf, that right shoulder would have been nice to see at 1.70 and I suspect we could still see it with such low volume on yesterday's trendline hit.

Ideally, we want this Right Shoulder to be higher than 1.70, indicating that selling has gotten exhausted sooner than it did in the Left Shoulder.  Longs are more willing to hold onto their stock at a little higher level (the low so far in this Right Shoulder is 1.74), and new buyers are willing to dip a toe in the water (low volume).

That's fine, if the Right Shoulder low already is in, at 1.74.

Quote
But, there is nothing wrong with a stock honoring it's new found trend! 

No, sir!  We like those trendline validations, don't we? 

And, we've already got a validation on your 30-minute.  We don't have to have it in the Hourly chart.

EDIT: Sorry, I forgot the horizontal lines for the 1.73 - 1.72 gap.  Let's see if this works.

Hi Melf, Basonista,

Great discussion and analysis you two have been posting here 

I wish I had sold up on that spike, but actually wound up selling for a small loss at 1.79.  I will still be watching, but I want to tread carefully in the market now, we have had a few too many distribution days on the Nasdaq recently 

Basonista,

We're running a business (managing our portfolio), and we've been interviewing Ol' GUNBUTT for the last week, in effort to determine whether or not we want to hire him to makes us some money (buy the stock), as any employer would want of an employee.

What are our requirements?

1. We wanted to see GNBT break out of the Bullish Falling Wedge, showing us first that he could do something bullish because there still is quite a bit of nearby resistance after the breakout.

He broke out.  That was fine.

2. Then, we wanted to see if he knew how to continue to act bullish on a pullback, indicating that there was good chance that this employee would make us some money.

That's been questionable, since he didn't know how to hold the Bullish Falling Wedge breakout.

But, so far, it looks like he does know how to form the Right Shoulder of a Bullish Inverse H&S, into which Bullish Falling Wedges are often morph.

3. Based on how our interviews with GNBT have gone so far, we can hire him for our portfolio much more cheaply than if wait for him to breakout, and prove to all of the other employers (traders) what a great producer he is!  

We don't mind "paying up" for a great producer, but we'd like it better if we can recognize a good performer early, and pay a lower "You'll have to prove yourself" price.

4. What if we hire this guy, and he keeps languishing below the Bullish Falling Wedge breakout, not getting the job done for us?

Are we going to watch our money go down the drain, while this guy goofs off?

Noooo-ooo.

5. Okay, then, let's look at the risk involved in hiring him Monday morning, vs. the reward if he produces, as we expect.

If we hire GNBT for our portfolio at, let's say for up to 1.78, how much are we will to lose on this guy?

Initially, we discussed allowing for a down-sloping neckline, and that we'd cut our losses at something below 1.70.

But, during the interview, we've noticed that, even though GNBT "might be" putting in a bullish Right Shoulder, he also has been very sloppy about not holding above the Bullish Falling Wedge breakout, and by not holding that .618 Fibonacci retracement, at 1.80.

But, he did put in a Bullish Inverted Hammer on Friday, so that's a sign that he wants us to hire him, and that he'll get right to work for us next week.

GNBT keeps showing us signs that he's ready to go to work for us, but then he doesn't quite convince us.

I'm not feeling very willing to hire this guy, and then see him back-slide below the 1.70 low of the Left Shoulder.  The main reason that we were interested in hiring him, was that we thought he already mastered the 1.70 level, and that he was ready to perform for us at a higher level.

GNBT also indicated to us that he knows how to hold a Basonista Trendline in 30-Minute chart.  If he wants to show us on Monday that he also knows how to hold a Basonista trenline in an Hourly Chart, I don't have a problem with that..

I'm thinking that if we hire GNBT, it shoud be with the clear understanding that he GET THE JOB DONE, and that we don't want any nonsense below 1.70.  

If we pay up to 1.78 to hire him, and if we have to fire him at 1.69, that will cost our business a 5.1%.

What kind of quota should we expect GNBT to meet for our company?

If GNBT can GET THE JOB DONE, and take out that neckline, he should be able to meet a quota of 2.53, and produce a 42% profit for our business.

Math For The Bullish Inverse H&S pattern:

2.05 - That's where the neckline was when the low of the Head was put in.

1.53 - The low of the Head

2.05 - 1.53 = 0.52 Points

The neckline is roughly 2.01 on Monday, + 0.52 = 2.53 for GNBT's quota.

We're looking at a very nice 1:8 risk:reward, so we probably should consider hiring GNBT for our portfolio.  Let's see what he's indicating to us near the open of business Monday morning.

By the way, during the interviews with GNBT this week, I got another indication from him that he's ready to go to work for us next week, which I'll post you next.

Tok,

Thanks, I understand your caution, which is why we haven't hired Ol' GUNBUTT yet. 

GNBT did well on his 13/21 RSI test during the interview.

The result confirmed that he clearly is trying to gather the "relative" strength to break out of an Inverse H&S because the same pattern showed up in that test.

1.86 was GNBT's highest achievement on Friday, so it's pivotal that GNBT perform better than that ("Buy Pivot").

A print of 1.87 is an indication that we probably should have hired him (Buy Signal).

That's just what this particular test is indicating to us.

I'm still in a bit of a quandry about whether I want to insist that GNBT not perform below the 1.70 level.

It would tick me off no end if he goofed off to, say 1.68, then broke out. 

We always could re-hire him for 1.87 (the Buy Signal), but I kinda dislike having employees around who deceive me like that.