SOHU

[Melf Elf]

Bought SOHU at 18.73, significantly higher than the 17.30 I wanted to pay for it. 

There's always a chance that yesterday's breakout was a fakeout, but  I was willing to pay a higher price because the right shoulder that I wanted was put in, and because the breakout "forced me into the stock."

Thanks for the feedback, David.

[David Randolph]

We've had just a small decline with low volume on SOHU yesterday, nothing to take notice of. I'm glad Melf Elf joined me in SOHU, since this way I know I'll be getting great technical analysis follow through 

I'll continue holding SOHU.

[David Randolph]

I don't know if SOHU will be able to respect the steep trendline I have on the chart below, but that would be a good thing 

Anyway, nothing has changed and I still have no other option but to continue holding SOHU. Over the next update I'll design a trading plan for it, we always need a safety net when trading stocks. For now I have a 4% profit, I don't think that will go away all of a sudden.

[David Randolph]

No story to tell on SOHU today, I'll keep holding.

[David Randolph]

SOHU's chart is quite strange, it is so hard to draw bullish lines in it ... maybe it's because the chart isn't bullish at all ! 

I don't know guys, I'm neutral on the general market now, and SOHU looks like a powerful rebound in a bearish trend, not the start of a new bull trend.

I have just 1.41% in profits at this moment. It's not much, but possibly that's all the stock has to give at this stage. I don't have a big trade mentality, and if 1.41% is all I can take, I'll take it !

[Amarens]

David,

Sohu is up premarket. I know you won't reconside, but I've set a TL that I liked and followed and will follow. Rises $ 0,12 a day and stands at $ 18,32 today. I believe SOHU still has some leg.

Amarens

[Melf Elf]

Bought SOHU at 18.73, significantly higher than the 17.30 I wanted to pay for it. 

There's always a chance that yesterday's breakout was a fakeout, but  I was willing to pay a higher price because the right shoulder that I wanted was put in, and because the breakout "forced me into the stock."

Sold SOHU at 19.03.  Gain: 1.6%

I "paid up" when I bought SOHU, for the reason given above.  Since my purchase, SOHU has put in bearish looking Hangman, Inverterd Hangman, a little Gravestone Doji, etc.   Today's action, so far, looks similar.  I took the small gain.

SOHU currently is BID 19.05...ASK 19.06

[Melf Elf]

I'm a day late, and several dollars short on SOHU, dang it.    

I need a staff of little elves, who do things like come up to me on Friday morning, and say, "Hey, Melf!  SOHU gapped down below a H&S Top on Tuesday's smack down in China, and now it's re-testing that broken neckline.  Wanna short it?"

Wouldn't that be nice!? 

"Short breakdowns, and short re-tests of breakdowns."

Chart History

1. After the parabolic rally from roughly 20.54 to 29.43 last Spring, the chart of SOHU was looking pretty lousy when the company came out and validated Wall Street's fears about China stocks, announcing that a change in government policy would adversely effect the company's revenues for the next two quarters. 

Wall Street hates that sort of thing, and when the fear became reality, I'm surpristed that SOHU didn't crash immediately.  SOHU did, however, get whacked for better than 20% over the next several weeks, and it suffered a Parabolic Return to the origin of the Parabolic Rally (20.54), as often is the case with parabolics, as we've discussed in the past.  The low was 20.21.

2. After that low, SOHU put in a Double Bottom, also known as a "W"-Bottom, and broke above the "W"-pivot, 23.50, putting 26.79 IN PLAY, which didn't get MADE right away.  SOHU rallied parabolicly again, from 20.42 to 25.68, but this time, SOHU did the wise thing, and went into a bullish continuation pattern.

3. The bullish continuation pattern was a Bull Flag, successful re-test of the W-Bottom breakout.  The low of the pattern was 23.26, which was slightly below the 23.50 "W"-pivot, for a Bear Trap fakeout, meaning that anyone who viewed that violation as something bearish, got faked out.

That session was a Bullish Hammer, and the Bull Flag broke out several sessions later, putting a target of 27.66 IN PLAY.

After that low, SOHU put in a Double Bottom, also known as a "W"-Bottom, and broke above the "W"-pivot, 23.50, putting 26.79 IN PLAY, which didn't get MADE right away.

That "lost target" of 26.79 got MADE, within one penny, four sessions after the Bull Flag breakout, at Red #1.  The high was 26.80.

4. From the 26.80 high, SOHO went back and re-tested the top area of the Bull Flag, at Red #2, which is perfectly fine, the on to a new high of 27.58, and the Bull Flag target of 27.66 got MADE, within eight cents.

TIP #1:  Targets that are IN PLAY only are "what we're aiming for," based on the calculations off the chart patterns.  Sometimes they get nailed, like the "W"-Bottom target, which was within one penny; or they can miss by a little or a lot. 

When SOHU gapped up to 27.48, ran to 27.58, then started fading, it's a good idea to "take the money."  We don't want to step over dollars to pick up dimes.  We'd still be waiting for 27.66 to get MADE, if we required exactitude from targets.

TIP #2: Athough targets often get exceeded, as they were in our recent XING trade, this chart is a very good example of why I "take profits when targets get MADE." 

SOHU was done on the upside at that last Bull Flag target.  While XING went to 19.94, beyond its 19.05 where I last sold it, it's currently 15% lower, at 16.19.

Our "Greed Devil" always will want that 19.94, but "taking what's given" at targets helps me to avoid that demon.

5. The rally to 27.58 ended up being the top of a Bearish Rising Wedge (pattern in red), and that pattern ended up being the Head of a Bearish H&S Top.

Both of those patterns, at the time, were difficult, if not impossible to find, because there weren't yet the subsequent candles in the chart to complete the picture for us.

That's another reason that I like to "take profits when targets get MADE."  It gets you out of there well ahead of being able to see that there was trouble ahead in the chart.

Technical indictors also are very helpful at tops like that.  There were a bunch a negative divergences in MACD, relative strength, etc., which don't necessarily mean "sell," but often are a good indication that it might be a good idea to cash in, or at least to take some off the table.

6. The "jig was up" on the February 6 gap down out of the Bearish Rising Wedge that almost went to the 23.26 low of the Bull Flag (pattern in green).  I don't know what the news was.

Tip #3:  As I've mentioned a number of times, Bearish Rising Wedges, and sometimes Bear Flags, are notorious for morphing into Bearish Head & Shoulders Tops.  On that February 6 gap down and low of 23.55, we want to be thinking "Possible neckline (23.26 and 23.55) of a H&S Top."

That's what we got.

7. After putting in the 23.55 low, SOHU completed the Right Shoulder of the H&S Top pattern (circled in blue), then gapped down below the neckline last Tuesday morning after the overnight selloff in China.

I'm never fond of what seems a bit of TA snobbery behind the old saw, "First the chart....then the news," as though the chart ALWAYS is telegraphing the news ahead of time, and telegraphing an impending selloff, but I will concede that it quite often is the case, as we can see in this chart.

The H&S Top was formed, and all this chart needed was anything that the market perceived as "bad news," to break that neckline.