As of 04/19/2024   Indus: 37,986 +211.02 +0.6%     Trans: 15,084 +136.79 +0.9%     Utils: 876 +15.31 +1.8%     Nasdaq: 15,282 -319.49 -2.0%     S&P 500: 4,967 -43.89 -0.9%	YTD  +0.8%   -5.1%   -0.7%    +1.8%    +4.1%	Targets    Overview: 04/12/2024     39,800 or 37,150 by 05/01/2024   16,200 or 15,000 by 05/01/2024   885 or 850 by 05/01/2024   16,700 or 15,800 by 05/01/2024   5,250 or 5,025 by 05/01/2024
Chart Pattern Indicator: on 4/1/24

As of 04/19/2024   Indus: 37,986 +211.02 +0.6%     Trans: 15,084 +136.79 +0.9%     Utils: 876 +15.31 +1.8%     Nasdaq: 15,282 -319.49 -2.0%     S&P 500: 4,967 -43.89 -0.9%	YTD  +0.8%   -5.1%   -0.7%    +1.8%    +4.1%
Targets    Overview: 04/12/2024     39,800 or 37,150 by 05/01/2024   16,200 or 15,000 by 05/01/2024   885 or 850 by 05/01/2024   16,700 or 15,800 by 05/01/2024   5,250 or 5,025 by 05/01/2024
Chart Pattern Indicator: on 4/1/24

Bulkowski's Monsanto Trade

This article discusses a swing trade in Monsanto stock during late 2010 and early 2011.

• The First Entry
• The Second Entry
• Exit
• See Also.

Monsanto Trade: The First Entry

Pictured on the right using the daily scale is the stock of Monsanto.

This trade began with the ugly double bottom chart pattern. I don't show it in the figure, but the first bottom is in July and the second is in October. The second bottom squeaks by with just over 5% separation between low prices (5% is the minimum). The tall white candle two days before I bought confirmed the ugly double bottom as a valid chart pattern.

The top of a congestion region (not shown) that stretched from late 2008 to early 2010 was at 88, and the bottom of that region was 70. Thus, that was the target area I was shooting for. If the stock performed well, then 88 was a possible upside target based on a Big W chart pattern (the same as the ugly double bottom but with taller sides). However, I felt that 70 was an easy move.

A check of the industry showed that 11 of 12 stocks were trending higher along with the general market. The next earnings were in January, far enough away that I didn't have to worry about the stock making an adverse move on earnings news.

I placed a stop at 58.07 which is just below the recent congestion region. The bottom dashed line is the price level of the stop. The top dashed line is the start of the target area.

I bought the stock on November 8 and received a fill at 62.30 with a potential loss of less than 7% (based on the stop price).

Monsanto Trade: The Second Entry

On November 17, I removed the stop "because world events are taking the market lower, allowing the stock to be stopped out. I don't think this is going to fall far (not below 40), so I think I can hold until it recovers from any drop." That's what I wrote in my trading notebook.

I also doubled my position on that day and received a fill at 60.10, averaging down since I had faith that the stock would recover.

Notice that if I did not remove the stop, I would have been taken out a few days after the second buy. And let me also say that this is one of the few times in my trading career where I have removed a stop. It's not something any serious trade does lightly.

My notes about the second buy are thus: "I am going to buy more because this has thrown back to the tight congestion area (buy at support). With an ugly double bottom in place, I think this is a low risk, high probability win scenario. Sell at 70."

The congestion area I show circled in red, and it's also the region I used to place the stop (a penny below the tall white candle in the first part of that area).

As the chart shows, the stock responded and moved higher.

Monsanto Trade: Exit

With a good gain, I placed a stop at 71.68, which is a penny below the highest low three candles back (at the time). The highest low is at A and that counts as 1. The third low is at B, which is also below a gap. This is an example of using the 3-bar net line, a technique that I have blogged about.

The day before the stock and the general market tumbled (not the Dow industrials, which held up well), I saw the tight congestion region at A and thought of moving up the stop. I didn't because a higher low had not been posted.

The stock hit my stop on January 19 at 71.67, for a gain of 15% on the first trade and 19% on the second.

-- Thomas Bulkowski

See Also

• Cache (CACH), support zone on entry, descending triangle on exit, -7% in 1 day.
• Charlotte Russe (CHIC), ugly double bottom on entry, trend change on exit, +9% in 7 days.
• Conseco (CNO), flat base on entry, inverted dead-cat bounce on exit, +110% in 6 days.
• Hecla Mining (HL), head-and-shoulders bottom on entry, trend change on exit, +15% in 9 days.
• Georgia Gulf (GGC), Adam & Adam double bottom on entry, +32% in 3 days.
• MSCI Australia Index Fund (EWA), head-and-shoulders bottom on entry, overhead resistance on exit, +5% in 28 days.
• MSCI South Africa Index Fund (EZA), ascending triangle on entry, 2B top on exit, +6% in 43 days.
• YRC Worldwide (YRCW), flat base on entry, an inverted dead-cat bounce on exit, +34% in 1 day.

 

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