I gave Real Money readers a strategy for trading Enphase Energy (ENPH) back on December 23, writing that "Traders who are long ENPH should continue to hold. Keep stop protection at $255 for now but if ENPH rallies above $345 stops could be raised to $285."
Traders should have been stopped out at least at $255 but maybe higher even though ENPH did not reach $345. Let's check the charts with prices gapping sharply lower after guiding Q2 revenues lower than expectations.
In this daily bar chart of ENPH, below, I can see that large downside price gap with prices breaking their March lows and the 50-day moving average line. The trading volume today is likely to be heavy and the On-Balance-Volume (OBV) line should continue its decline from November. The Moving Average Convergence Divergence (MACD) oscillator is slightly above the zero line but likely to cross to the downside.
In this weekly Japanese candlestick chart of ENPH, below, we don't have today's price action but we can imagine that prices have made a new low for the move down and are breaking a longer-term uptrend (not drawn). ENPH has been trading below the 40-week moving average line for the past four months.
The weekly OBV line shows a peak in late October. The MACD oscillator is well below the zero line but trying to cross upwards for a cover shorts buy signal.
In this daily Point and Figure chart of ENPH, below, we can see the recent price action with the gap filled in (Point and Figure charts do not have gaps). A downside price target of $97 is now being indicated.
In this weekly Point and Figure chart of ENPH, below, I can see the same $97 price target as the daily chart above.
Bottom line strategy: The message of today's gap lower is clear. Avoid the long side of ENPH.
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