Last week in one of my post, I have allured a possible long trade for GS and MS. Today, that long trade came to an end. The following charts highlight the setup and exit I was monitoring for the trade on GS.
(click on the image to get a larger view)
In the GS daily chart, I use the January's high and low to establish the Fibonacci retracement levels for February trading. GS started to pullback near the end of January until the first bar (white arrow) in February, where it tested for support at the 62% Fib retracement. The 2nd candle in February, a hammer candle again tested the 62% retracement for support and presented the setup. A long position was triggered when the next candle (3rd bar in February) exceeded the high of the hammer candle (circled in red). The initial target is the 100% retracement level (red arrow) and the extended target will be the Fib Extension, 138% (FE, the most upper dotted line), while the low of the hammer will be used for establishing the stop loss level. On the 4th bar in Feb, it reached the initial target. Since this target is some distance away from the upper trendline, one could take a partial profit instead of exiting the position completely and leave a portion of the position to see if it can run up to the trendline. If it break through the trendline, then monitor it for possible move to the FE (138%) level. On Monday, the day before the TARP II announcement, a hangman candle was formed near the upper trendline. As the price started to retreat today and when it dropped below the lower body of the hangman, the position is closed. If one want to hang on for confirmation, then the position must be exited when the price dropped below the low of the hangman or risk in turning a profitable trade into a losing trade (circled yellow).
(click on the image to get a larger view)
In the 15 minutes intraday chart, an evening star reversal pattern was formed from the first 45 minutes of trading today (circled in red). This is a sign to get out, and when the price broke through the retracement zone, one shouldn't even have any second thought on closing out the position.
Until more details are presented for the TARP II, the financial stocks will most likely continue to be volatile. I will continue to monitor them for new trading opportunities.
