If you want a bullish chart of the day, simply throw a dart. At least that's what it feels like. And for the bears looking for a chart, good luck. Well, that's not entirely true. While the bull scans are finding dozens upon dozens of set ups, there are still a few bearish charts to be had. Take Owens Corning (OC), for instance.
Though it doesn't happen very often, the stock put in a somewhat unique pattern in relation to the parabolic stop and reverse (PSAR) indicators. As I've previously discussed, I prefer to map a faster-moving and slower-moving PSAR on my charts. The pattern, which I call "Death Valley" because it forms a "V," is bearish and sounds ominous, appeared two days ago on the daily chart. This is when we see both the slower and faster-moving PSARs go from bearish to bullish back to bearish, with only a single day bullish. This is a short trigger.
I tend to use the high of the three days prior to and including the signal day as a stop. In this case, I will use $43.75 as a stop. The big push earlier this week introduces just a bit too much risk in terms of a stop. However, that rejection and reversal is also another bearish signal.
The secondary indicators measuring momentum and trend are all bearish or neutral. One could call the vortex indicator bearish, but the jagged nature of the moves indicate more of an uncertain view than pure bearishness. The relative strength index (RSI) under 50 and the complete rollover in the slow stochastics, though, are bearish.
A closer look at price on its own chart is warranted as well. OC had a strong run from December through February before pulling back in a nice bull flag formation. Unfortunately, it didn't give many traders a chance to buy the breakout since the stock gapped out of the flag. I would have expected to see some push after that gap, but instead the shares fell into a consolidation channel.
The thesis behind the additional push is from the breakout buyers chasing the gap, concluding that it was still the first day of a breakout move. And the stock did extend a bit, but recently it tested the February highs. Initially, we held and then we got the big push Wednesday. That push was rejected like me going to the hole against Shaq. Now we are left with this big red candle followed by a break below two support levels yesterday and follow-through today. That leads me to believe we'll at least fill the gap $1 lower from here and possibly test the support level of the flag all the way down at $38.
Shorts could use either the $42 level as a stop or partial stop as well as the $43.50 level. My view is to use the $42 level as an alert, but maintain $43.50 as the stop for a short taken here. I will look to take partial profits $1 lower, then additional profits in the low $38s. From there, I would only leave a small runner position with a $40 stop. Time isn't too important here, as in a time frame stop or a need for the breakdown to occur immediately. This one is all about price.
