Skip to main content

Trade Setup: TEAM

Atlassian Corp (TEAM) had its initial public offering (IPO) in December 2015. Since that time the price has displayed interesting behavior from a long perspective.

During the beginning of 2016 TEAM declined rapidly along with the rest of the market as global economic fears were pervasive among market participants. Since that decline, TEAM found support in early February 2016 as seen by the two reversal candlesticks on the weekly chart.  The weekly reversals in price were accompanied by an increase in volume both weeks which indicated that $20 is a meaningful level of support from a weekly bar perspective.

In mid-May 2016 TEAM formed a higher low around $22 and also exhibited a reversal candlestick at this level. Upon clearing prior resistance in June 2016 volume accelerated again for four weeks indicating conviction in the move higher.


Zooming in one order of magnitude shorter, the daily chart shows that after the breakout out above previous resistance between $24-25 TEAM retested the $23 area before resuming its advance. Retests are common on breakout trades. In the case of TEAM, there is nothing of concern with its price action on the retest. In fact, pullback traders may have even successfully bought the textbook advance off of $23.


Since the breakout TEAM advanced steadily to its post-IPO high where it is currently testing support at prior resistance. The most recent daily candlestick displays a reversal move at the $30 level which also corresponds to the highest weekly close post-IPO.

Traders should look for signs of a reversal higher off of this level to initiate a long position. Only open a trade once the price begins to prove itself based on your expectation. In other words, there is no reason to be long TEAM until it begins to trend up on the shorter timeframe. This reversal candlestick could be nothing more than a random one day occurrence and traders must act on what really happens, not what could.

If TEAM does advance from this level of support, risk can be managed tightly just below the most recent swing low at $29 or even $30 for a pullback trade. Overall, the stock is offering an attractive potential risk to reward multiple pending an advance from here.

As always, please feel free to contact me with any comments or questions. Thanks for reading.

John

Labels:

Comments

Post a Comment

Popular posts from this blog

Research Review: Does Trend Following Work on Stocks?

In November 2005 Cole Wilcox and Eric Crittenden of Blackstar Funds LLC* (now Longboard Asset Management) published a research report analyzing the effectiveness in using a Trend Following   trading strategy in the US equity markets.   Both fund managers were using Trend Following successfully in the futures markets for many years.   Their success with Trend Following, as well as their peer's results in similar markets , piqued their curiosity and led them to conduct this research.   The strategy tested is a long-only Trend Following program. Trend Following uses absolute price change to delineate strength or weakness in a particular security. In this case, the researchers added long exposure on positive absolute price changes that resulted in an all-time high on a one week closing basis. Before actual testing began, Wilcox and Crittenden made sure to address any data issues. For example, given the expansive time horizon for testing, the authors account ...
2 comments
Read more

Managing Position Level Risk with Dr. Alexander Elder’s 2% Rule

Executing sound risk management principles in your trading is essential to having any chance of investment survival. If one position is sized too large and generates an enormous loss, this can be catastrophic to your account as well as your psychology as a trader. Fortunately, there are methods you can learn that will protect your account. In The New Trading for a Living , Dr. Alexander Elder proposes a method for controlling risk at the position level which he calls the 2% Rule. This guideline states that the total risk in any position cannot exceed 2% of the current month-end account value. For example, if you have $100,000 in your account at the end of the previous month, the 2% Rule limits your maximum risk on any trade to $2,000. That is, risk is defined as the dollar value of the difference between your purchase price and stop loss and cannot exceed 2% of the account value under this rule. Be sure to not confuse 2% with the total position size. While 2% may seem sm...
3 comments
Read more

Possible Kangaroo Tail Developing from Longer Term Perspective

Despite the title of this post, the curious development of animal anatomy will not be the topic of discussion. Instead, readers will have an opportunity to observe a potential reversal move underway in equity markets and crude oil delineated by this distinctive price action. No trend can last indefinitely and being able to spot signs of a reversal will help a trader better manage a position. One such method is identification of price action through what Dr. Alexander Elder describes as Kangaroo Tails. This sort of price behavior has a unique pattern. Elder states, “A Kangaroo Tail consists of a single, very tall bar, flanked by two regular bars, that protrudes from a tight weave of prices” (How to Trade for a Living, 65). Kangaroo tails that close down indicate a potential market top whereas when it closes up a possible reversal higher is developing. As with most patterns, price action on a long term basis usually carries more weight as it represents a general shift in the market ...
1 comment
Read more