DBD and the Bearish Trade

I did not enter this trade because the stochastics oscillator already looked overextended. However, using the PRC trade, I think that money could have been made. Let's take a closer look. On Sept. 21, DBD went down from $44 to $36. My impression is that this had dropped too much. So I decided to wait for the "dead cat bounce" as they say. Using the Fibonacci tool I establish my possible entry point at 39.95. I was waiting for the stochastics to jump up and approach the overbought area before entering a trade. On the other hand, the MACD was bearish still, so entry there would not have been a bad move. Remember that oscillators are ideal for stocks that are moving sideways, not for trending stocks. Still, they provide a ballpark figure with which to work.

From an Elliott wave point of view, when stocks fall like this, they are usually part of what is called a "DOUBLE ZIGZAG" which works like a staircase. Here is the Elliott counts on a double zigzag: a-b-c-x-a-b-c. the a's and the c's are strong moves down while the b's are bounces. When trading double zigzags, the trader must be aware that the "b" bounced usually represent no more than 61.8% of the a's, but more often they do not exceed 50%. The "x" bounce is usually less prominent than the "b" bounces. Thus, the drop that triggers my system is usually an "a" or a "c" drop. Unless the stock has been droping for a long time, we need not to be concerned with the second "c" drop. Thus it follows that a drop that triggers my system will be followed by a bounce that does not retrace more than 50%, only to be followed by a second drop that could emulate the first. Contrary to the bullish trades, bearish trades are quick and unexpected. So the best thing to do is to stay on the trade until the second, hopefully dramatic drop occurs, at which time we exit quickly with good profits.

This is what I am doing about DBD: Seeing that the stock fell to $36.46, I suspect that this first "a" drop is already ending (overextended) so I decide to wait for the first "b" to be completed to try and make money on the first "c" drop. My assumption is that "b" will bounce back to about $40, at which time I would wait for an oscillator signal to enter the market.



As you well know, DBD continued gently down to $33.78 and may begin to bounce back. Both the stochastics and the MACD are oversold and should give a buy signal shortly. This is not to say that I would leave a bearish trade, I am only considering the reentry here. I then redraw my Fibonacci expectations, and I figure that the 38.2% is now at $38.22. Once the stock has bounce to that level, I could consider entering a bearish trade, if the oscillators give me a sell signal. If instead, the stock bounces back above $41, I will NOT enter the trade at all, assuming that the Elliott wave series is not a double zigzag.

The b wave can be prolonged, and it may take several weeks for "b" to be completed. Much patience is needed, but it will certainly be rewarded.