The LL active short trade, although currently trading above the original entry price, remains one of my favorite longer-term swing shorts. As this updated weekly chart illustrates, the negative divergences continue to build as LL has recently manage to eke out a new high, albeit on rapidly deteriorating momentum. The divergence in the MACD, although still in the formation process, will likely be confirmed soon on any downside or even additional sideways price action in the stock. (The difference between divergences forming and divergences in place/confirmed, was recently discussed in this post). Confirmation will come via a bearish crossover on the MACD (i.e.- the MACD line crosses below the signal line). An additional sell signal will come once the RSI drops back below the 70 level, which is also likely on any additional consolidation or downside in the stock.
As a follow-up to the recent post discussing intraday trendline breaches (when prices break above or below a trendline only to close back above said trendline by the end of the trading session), I’ve added some notations to the weekly trendline as currently drawn on LL. Trendline drawing is an art, not a science in my opinion. 5 technicians can look at the same trend in a stock and render 5 (often more) variations of a trendline defining the uptrend. The variations are even greater considering that some traders & technicians use arithmetic (linear) price scaling while others (myself included) prefer log (aka- semi-log) scaling, both of which will render different trendlines even if drawn by the same person.
My style of trendline drawing is highly subjective but basically, when I look at a particular security, in my mind’s eye I will usually “see” the salient points at which to connect the various price points/candlesticks. This method often leads to the exclusion of several candlestick shadows (wicks and tails) and at times I may exclude an entire candlestick altogether. These excluded sticks are typically “errant” candlesticks that for whatever reason, fell below or above a well-defined linear series of candlestick bodies and/or shadows. For the most part, my trendlines are drawn in order to touch the largest number of bodies, wicks, and/or tails possible but again, there is quite a bit of subjectiveness involved in the process.