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My process uses CANSLIM and Wyckoff principles. In November of 2018 TVTY was on the IBD 50 at #41. The story is they manage the Silver Sneakers fitness program for seniors.
The stock had been building a cause for 9 years. The structure looked very attractive to me as it seemed to have all the characteristics of an accumulation pattern. You can see how I marked up the Wyckoff Phases. The stock rallied out of Phase |C| into a MSOS, backed up, and appeared to be reversing out of the BUA range in late November 2018. It looked like all systems go, and I entered a position at POE #1, on the Sbar.
Almost immediately, the trade failed! The company announced major M&A activity that institutions greeted with massive selling. The stock gapped down overnight and I was stopped out with a 25% loss.
Could I have avoided this debacle? There were clues! The BUA is where the red flags started waving. For starters, the MSOS rally never made it back to the old high from 2008; and look at the change of character bar after the MSOS rally peak in late 2017. Institutional selling! But is it strong or weak hands? The subsequent price action provides clues. The notations on the weekly chart of the area of the BUA (below) show what I missed.
What did I learn from my mistakes on this trade?
1) Just because a stock has a MSOS rally, I can not assume that it is ‘all clear’ for a major uptrend.
2) It is essential to analyze Volume and Price action within the BUA. I must be alert and vigilant for clues about the quality of Supply and Demand. BUA can sometimes be Distribution by strong hands…
3) I am not afraid of making mistakes. Everybody does it. I will take the lessons learned and improve my future trading results.
Wyckoff Market Discussion 300th Episode on May 25, 2022!