Bulkowski's Cypress Semiconductor Trading Quiz

The three bottoms labels 1, 2, and 3 are not the bottoms of a triple bottom. Why not? Because the pattern is not confirmed. That means price doesn't close above the highest peak in the pattern before tumbling below the pattern's low. However, bottoms 1 and 2 DO form a double bottom.

Price has broken out above the Eve & Eve double bottom, confirming it as a valid chart pattern. It also finished a small pennant pattern. Overhead resistance at the 1, 2, 3 bottom appears as a red line on the chart. If you were to buy now, you are getting in after confirmation and possibly will be buying when price has touched overhead resistance and is about to throwback.

This is the same chart as the last slide.

Answer 1 (Buy?): The safest thing to do is wait for a throwback. A better entry would be to place a stop order to buy at the price of the Eve & Eve double bottom top. That would get you in at the breakout price, not a few days after confirmation like you would be doing now.

Answer 2 (target?), 3 (stop?): My notebook entry describes the answers to these two questions.

"Date: 7 February 2005. Filled at: 12.69. Stop: 11.05, just below the pennant in February. Upside target: 15.71 using book score method (the median price rise for an Eve & Eve double bottom, based on the scoring system in my book, Trading Classic Chart Patterns).

The 13-16 range is going to be a problem for this stock (May to June consolidation region -- a measured move down corrective phase [I show this as 1, 2, 3 in the chart]). If the Nasdaq turns around (continues up), this stock might do well. I chose this over Intel because of the book score. Intel has a -4 score and upward breakout from descending triangle. CCI [commodity channel index] said buy on Friday and the stock is riding the top Bollinger band upward."

From my notebook: "Future Nasdaq direction (guess): I expect the Nasdaq to stall at the knot of overhead resistance and turn down. That's not good for the stock, but it shows strong upward momentum and I'm hoping the flag (in the stock) will support the stock."

Here's the Nasdaq chart with the small knot of resistance. It forms along a resistance band I show as blue lines, corresponding to peaks or valleys.

This is a complicated looking screen but it shows the CCI indicator in red on the bottom pane and a smoothed CCI in blue (the DCCI). A bullish crossover occurred as shown in the upper partition of the screen in green is the most recent signal. A trading signal is when the CCI line crosses the zero line. The zero line is the one in black on the bottom pane and a green vertical bar shows the buy signal location on the top pane.

These are Bollinger bands. You can see price in the bottom pane trading along the upper band with the upper and lower bands expanding.

This figure shows what I saw. The zoom in the upper right shows that price opened near the intraday low and it closed there. The zoom on the left shows what I expected to happen - that of a tail or spike forming on high volume. The high volume led me to believe it was a one-day reversal (the high volume appears on the bar chart, not on the zooms).

Question: What do you do with the stock, assuming you own it? Do you buy more, hold, sell, or short the stock?

"Date: 10 February 2005. Filled at: 13.28. Sell reason: Stock has made what looks like a tail. Time to sell before I give back more profit and the stock plunges."

The chart shows where I bought and sold. The lesson I learned from this trade is that with a spike/tail, you should always wait another day for the picture to clarify. In short, I sold too soon. I made about 4.5%. That's not bad for a 3 day hold time. On an annual basis, it's over 540%. Now THAT's a good gain!