Trading 3 Black Crows, A Hammer and On Semiconductor

• Posted by Greg Harmon
• on March 26th, 2015

Coming into this week Semi-conductors looked great, ready to break out to the upside and make long holders a good bit of money. Well we know how that worked out. Almost right out of the starting gate Monday they started falling. strong bearish Marubozu candles Monday, followed by longer one’s Tuesday and Wednesday. The 3 together forming a bearish three Black crows candlestick pattern, indicating a reversal and continuation lower.

That pattern does not tell you how much lower though. And with a further drop Thursday many names are forming Hammer candles. These are possible reversal candles for a move higher. So Three Black Crows tell you more downside, and it lasts about 4 market hours? Technically that still fits the definition. So now you are all confused. Just last night you were ready to sell everything and go short. Now there is a possible reversal? Isn’t the stock market fun?

Well, here is a a low risk simple way to take a stab at that turn around without losing your shirt. One of the names I was watching was On Semiconductor ($ONNN). It was running toward resistance Friday, but printed one of those 3 Black Crows patterns, followed by a Hammer Thursday. What makes the possibility of a reversal a bit more interesting is that it reversed intraday at the 50 day SMA, and it is well below the lower Bollinger Band®.

Since you are a bit skittish one way to trade a possible reversal is through the options market. Risking just 2.5% of the stock price ($11.69) you can buy the April 12 Calls (30 cents). If the reversal happens you make money as it rises and penny for penny as the price moves over 12.30. If it falls the most you can lose is the premium you paid.

Get my new ebook, Markets for 2015 and Beyond, a long term forecast with all proceeds going to charity.

Want to learn more about Dragonfly Capital Views?
Dragonfly Capital Views Performance Through March 2015 Expiry and sign up here

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus