Another Bearish Pattern Presenting Massive Opportunity On ServiceNow (NOW)
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Yesterday, we alerted readers of a trade idea that was developing on Netflix (NFLX), as the stock formed a head and shoulders pattern, alongside a market that was growing weaker and weaker. Well, today we have a very similar trade to highlight, which could have the same results as the nearly $12 drop we saw from NFLX yesterday.
This time, the bearish head and shoulders pattern is forming on the ServiceNow (NOW). No need for us to go over what exactly this means, as we laid that out in great detail in our last edition of the Daily Smart Report for NFLX. This time, we will review the prices we are watching and what to look for.
The neck line on this one was more of a zone rather than a level. If you pull up the ticker on your charts you see that this neck zone is around 545-540, which has already broken this morning after a slight gap down through after hours trading.
If there is any sort of follow through that resembles that of NFLX, we most likely only missed a small piece of the overall move here. However, this does not mean to jump in with both feet, but it does mean we need to define our risk and determine what our strike and expiration will be.
If we think more downside to this move, it behooves us to find the best entry possible, so we can get the best risk/reward possible. In this case, I would suggest a “puts on pops” approach. Meaning, if we get a bit of a relief bounce, we can scale into our puts position, realizing this is a weak market and that this weakness will only drag stocks such as this one down with it.
Another thing to take into account is something we rarely talk about in these articles, but definitely should more often and that is your emotions. How can we minimize our emotional response to things we have no control over, like the direction price moves? Well, we look for the best entry.
No one likes to see a trade go against them or to experience drawdown, but nonetheless, it happens. The one thing we can control, however, is our emotions. Having the patience to wait for the best entry will help us to mitigate any rash decision making that our emotions might cause, like selling to early in the event we do experience some drawdown on our position.
As I write this, the stock is currently giving us a bit of a bounce. Which is why we need to keep a close eye on it to see just how high the price will bounce. Once you are locked into the stock, look for a clear sign of reversal, like a spinning top or a massive (or small) green candle on volume that does not correspond to that kind of move. More on Volume Price Analysis later.
But until then, be sure to watch this stock and the market overall for a chance to make another game changing trade.
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