Steve Sollheiser
KWT Breaks Support
There is very interesting price-action in the Market Vectors Solar Energy ETF (KWT) in the last trading day. We can see that price has closed below the support level of $3.40 which is a bearish signal. We can also see that the breakout price was touching an ascending resistance line twice – which creates this a Descending Broadening chart pattern.
We would expect price to continue downwards with target at approximately $2.00. If price opens above the level it will be a sign that the support is still strong, and if price opens below the $3.40 level it is a sign of continuation of the bearish move.
If price pulls back to the $3.40 (re-test the level from below) we will enter a short trade with stop loss right above $3.40 and target at $2.00. This trade should have very little risk and relatively high reward.
TAN May Soon Break Support
The Guggenheim Solar ETF (TAN) is showing the same signals as the KWT, which reenforces our analysis. When two correlated stocks show different signals one can conclude that the signal is weak – however in this case the same thing happened: price has closed very close to the $23.00, without breaking it.
In case price opens below this level, we will expect a continuation of the bearish move. In case price opens above it (we expect a gap to occur, as price stopped near a very psychologically-charged level), it will be a signal that the level is still strong.
In this case, we will still trade the pullback to the $23.00 level from below, with target at exactly $10.00. Note that that this chart pattern has 80% win rate, and the percentage of chart patterns that meet the projected target is 68%. So we will trade it, however if price reaches only half the target we will still take our profits and close the trade.
Summary
If price breaks the support level and re-tests it from below, we will enter a sell trade on both TAN and KWT. In case of a gap upwards we will wait for price to touch the resistance trend line before reacting.
Disclosure: No Position.
Steve Sollheiser is a trader and a writer with experience in trading stock chart patterns and trading Forex. In his site he shares his insight about chart trading and trading psychology.
