Today, I'm talking with EWI's Prime Stocks Flash editor Ron Feinstein on the analytical process that led to his issuing two flash alerts on Molycorp, Inc. (MCP) back in July.
("Flash alerts" are emails that Prime Stocks Flash subscribers get as soon as a high-probability opportunity is found. You can learn more about EWI's Flash services here .)
Nico: Good morning, Ron. The chart below captures the complete, two-part "flash alert" you presented on Molycorp back in July. The first alert was issued on July 20 in anticipation of a major price rise. What about the stock's Elliott wave pattern fortified your call?
Ron: While it can't be seen on the chart above, I spotted a clear 5-wave rally pattern on a much shorter timeframe. Having observed the price behavior of Molycorp I felt it was an opportunity not to miss with well-defined reasonable risk and significant upside potential.
Nico: Prices quickly confirmed your wave count by rallying strongly for an entire week. Then, on July 26, you determined that the rally was ending. What about the Elliott structure indicated that the stock's upside had been tapped?
Ron: According to the Elliott wave guidelines, we always have to be concerned about a correction following a 5-wave sequence. The chart above shows that we did, in fact, have that 5-wave sequence, plus we had both reasonable time and price relationships into what might have been a diagonal triangle rally termination pattern.
Nico: Were there any other technical measures in your arsenal that reinforced your topping analysis?
Ron: Yes, three main measures:
- OCS (Oscillator) was not confirming the new highs.
- RSI (Relative Strength Index) was showing a declining momentum divergence.
- Volume was declining
Nico: On July 26, you issued a suggested exit "flash alert." The chart below illustrates what happened to MCP in the 24 hours that followed.
Nico: In your experience, how does the Wave Principle, combined with other traditional technical studies, improve your ability to identify these "flash" opportunities?
Ron: The Wave Principle ideally gives us a number of "maps" as to how price action should develop. I look for solid wave counts that can be backed up by traditional technical analysis to find setups where the risk/reward potential is favorable. Given how volatile the markets have become, I often have to anticipate what might happen and then adjust 'on the fly.'
Nico: Thank you so much for your time, Ron. I know it's precious.
(Editor's Note: On October 12, Ron published a brand-new Prime Stocks Flash update for Molycorp.)