As of 12/27/2024   Indus: 42,992 -333.59 -0.8%     Trans: 16,031 -73.46 -0.5%     Utils: 987 -4.51 -0.5%     Nasdaq: 19,722 -298.33 -1.5%     S&P 500: 5,971 -66.75 -1.1%	YTD  +14.1%    +0.8%    +12.0%    +31.4%    +25.2%	Targets    Overview: 12/12/2024     44,200 or 41,750 by 01/01/2025   16,700 or 15,500 by 01/15/2025   1,050 or 975 by 01/01/2025   20,500 or 19,300 by 01/01/2025   6,100 or 5,775 by 01/01/2025
Chart Pattern Indicator: on 12/27/24

As of 12/27/2024   Indus: 42,992 -333.59 -0.8%     Trans: 16,031 -73.46 -0.5%     Utils: 987 -4.51 -0.5%     Nasdaq: 19,722 -298.33 -1.5%     S&P 500: 5,971 -66.75 -1.1%	YTD  +14.1%    +0.8%    +12.0%    +31.4%    +25.2%
Targets    Overview: 12/12/2024     44,200 or 41,750 by 01/01/2025   16,700 or 15,500 by 01/15/2025   1,050 or 975 by 01/01/2025   20,500 or 19,300 by 01/01/2025   6,100 or 5,775 by 01/01/2025
Chart Pattern Indicator: on 12/27/24

Bulkowski's CNO Trade 2.0

This article discusses a trade I made in Conseco that gained 90% in two months.

• Entry Position
• Price Gapped. Why?
• Exit Position
• Aftermath
• See Also.

CNO: Entry Position

On the right is a chart of Conseco on the daily scale. It's a stock I have successfully traded before.

I bought the stock after it retraced 38% of the rise from 7/28 to 8/4/2009 (not shown). I missed the low on entry by a day (A) because price dropped the day after I bought. Since this is a very volatile stock, I didn't use a stop. The position size was 1/4 normal, so if the company ran into trouble and price dropped, it wouldn't be too painful.

Anyway, the stock made a nice run up from the low at A, ending at B. If you look at the price and time scales, you'll see that it doubled in less than 2 months. That means it qualifies as a high and tight flag chart pattern. The flag is a long one, from B to C. The pattern confirms at D, when price climbed above the high shown in the flagpole (AB). I illustrate confirmation by a thin horizontal green line connecting B and D.

CNO: Price Gapped. Why?

Why did price gap higher from C to D? The answer is manifold. Moody's boosted its outlook to positive from negative, citing efforts by the company to pay down debt. FBR Capital Markets upgraded the stock to outperform from market price (whatever that means) and raised their target to 9 from 4. The stock gapped 29% higher on those events.

I have written about the inverted dead-cat bounce, most recently in YRCW. I made 34% in one day. This trade is another example of that chart pattern.

With price shooting higher in one session and given that the company appears headed away from bankruptcy, this looks like a long-term winner. There's just one catch. To help pay down debt and improve their finances, I read that they plan to issue something like $200 million worth of stock. If and when they do that, this stock will get clobbered, probably to the tune of 10%, more or less. I didn't want to see my gains evaporate, so I sold it at the open the next day.

CNO: Exit Position

I considered day trading the exit but am glad I didn't. The stock opened and then dropped for several minutes before recovering and soaring to a new high. My guess is I'd hold it long enough for the stock to have bottomed and then sold, resulting in a larger give back. That's only a guess, of course. I decided to avoid all of that stress of watching my stock drop, selling, and then watching it recover by just exiting on the open.

I made 90% in two months on this one.

CNO: Aftermath

I am beginning to believe that the inverted dead-cat bounce is the most important event pattern. If you fail to exit promptly, you can see all of your gains evaporate. That's not always true, of course.

I remember one case involving Southwest Airlines. Their flight attendants, after years of arguing with management, finally came to a labor agreement. The stock jumped up and I sold. Over the next few days, the stock eased lower but then started a long move up, one I missed because I had already sold the stock.

The chart shows Conseco on the daily scale. You can see how price peaked the day after I sold at 7.04 but then moved lower, hitting bottom (so far) at 5.12, a drop of 27%.

Of course, since I sold at 6.35, my savings amount to 19%, which is still a tidy sum.

-- Thomas Bulkowski

More

See Also

• Here are other actual trades.
• Speaking of trades, check out the quizzes, some of which feature actual trades.
• What do you know about event patterns?
• inverted dead-cat bounce. For good times, check out the iDCB event pattern.
• Selling tips. Here's a dozen selling tips every trader should know.
• Trade review. Reviewing trades can lead to profits.
• Hold on. How long to you need to hold onto a stock? Find out...

Happiness isn't something you experience; it's something you remember. -- Oscar Levant