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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski’s Trade in Charlotte Russe

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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 07/20/2017
21,612 -28.97 -0.1%
9,483 -92.64 -1.0%
720 5.10 0.7%
6,390 4.96 0.1%
2,473 -0.38 0.0%
YTD
9.4%
4.9%
9.1%
18.7%
10.5%
Tom's Targets    Overview: 07/14/2017
21,850 or 21,000 by 08/01/2017
9,950 or 9,400 by 08/01/2017
725 or 685 by 08/01/2017
6,450 or 6,175 by 08/01/2017
2,525 or 2,400 by 08/01/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

 

Trade One: 8.8%

CHIC on the daily scale

The chart shows two trades I made in Charlotte Russe (CHIC) on the daily scale. I bought the stock twice, the first time was on January 29 (16.60) and I sold it four trading days later (18.13) for a net profit of 8.8%. I bought because of the ugly double bottom (bottoms 1 and 2) and breakout from a small congestion region (a few days wide).

I also considered it a busted head-and-shoulders top. The busted part means price broke out downward but turned around and then moved above the top of the pattern. Busted patterns often make for good trades. I did not log the reason for the sale, but I raised the stop twice along the way (based on volatility) and was not stopped out. I just decided to sell, perhaps trying to keep the gain in this volatile market. The timing of the sale was quite good, exiting near a minor high.

Trade Two: -5%

The second trade began on February 11 at an entry price of 18.55 because price had continued to move up, and that means it broke out to a new high. Ten days later, the company announced a Dutch auction tender offer for a purchase price of between 18 and 20, ending March 20 but extended to April 2.

I raised the stop three times as price climbed, ending at 18.57. That is just a few pennies below the congestion region in March, shown as a green line. I narrowed the stop because I was concerned that price would break out of the congestion region and drop.

On March 26, the stock gapped open lower after the company forecast a weak third quarter. The stop executed and took me out not at the 18.57 stop price, but at the opening price of 17.58. What was a four figure profit turned into a three figure loss. Sigh.

I am surprised that the stock moved below the 18 offer. There is no guarantee that the company will buy all of your shares at 18 (it may be prorated), but you could buy the stock now and offer it to the company at 18 or higher. You could receive between 18 and 20 a share. I am not recommending this (and I do not plan to rebuy the stock), but it is an idea.

 

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Aftermath

The Charlotte Russe stock on the daily scale

The chart shows a zoom-in of the price action surrounding the two trades. The sale of the first trade was just a day off the high. The second buy occurred on a day that turned into a northing doji candlestick. In an uptrend, if you believe candle theory, price is supposed to drop after a northern doji appears. You can sell how awful that bearish prediction turned out because price continued higher.

My testing of the candle revealed that it functions as a continuation 51% of the time in a bull market. In other words, the breakout direction is random. See my book, Encyclopedia of Candlestick Charts, pages 248 to 256 for a detailed analysis of the candlestick.

I am gratified to see that the stock has dropped to a price (at A) below my sell point.

The Dutch tender offer completed at a price of $18 a share -- at the bottom of the 18 to 20 range. I expected a higher price since the shares traded above 20 for part of the time, but the plunge that hit my stop occurred before the auction completed, and that changed stockholder thinking.

In the figure, the bought and sold arrows do not point to the prices at which the transactions occurred, rather to the days when they occurred.

Not shown, but the stock recovered to 19 -- not quite closing the gap -- before tumbling all the way down to 4 in the 2008 bear market, bottoming in December 2008.

-- Thomas Bulkowski

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