Allied Nevada Charts: Classic Sell Signal
I sold out of my
Allied Nevada Gold
(ANV)
position Tuesday as it gave a classic failure signal as the day wore on.
This came after having registered a
change on a big drop to the $12.50 level from $15.50 during the middle of January. I had held this position for a very long time, riding it higher for the past couple years.
Although I like the gold sector on a longer-term basis and even this stock as well, I had added significantly to my gold portfolio late last week and needed to take some profits into this two-day run. ANV was a good candidate to sell given the chart behavior on the short- to intermediate-term time frames. I believe it is useful to examine what a sell signal looks like and the importance of trading the time frames, so ANV is a good example.
When we look at the long-term timeframe of ANV, you can see why I remain bullish in that time frame.
It appears that we are witnessing nothing more than a correction within an overall bullish run higher.
On this time frame you can see that the most likely buy area is around the $9 to $10 range. We closed Tuesday at $13.66 after making a high of $14.18. That's another $3 to $4 lower if it was to get there. There's even an outside chance it trades back as low $7, although that seems unlikely.
So there is room for a further decline, but you don't sell a confirmed bullish stock because it might go lower; there has to be a better reason.
The reason is shown in the intermediate-term chart.
Here we can see that on this time frame problems are real. The problem is that the fast decline in mid-January came on very high volume. Compare the down volume to the volume at the swing low and you can see the issue clearly -- more than 3 million shares on the way down against less than 3 million on the way up. Although it wasn't enough to take out the swing point just yet, it appears that it will definitely take another run at it before it is over.
If we switch to the daily view, we can see that the next run lower looks to be on the horizon.
On this time frame, we can see the trigger that made me move Tuesday. This is the classic sell signal I was speaking of earlier.
There are two keys to the sell signal. The first is that there was conviction shown on the way down. In the case of ANV, conviction was quite evident on Jan. 21 as volume swelled and the price range was huge.
Now look at the past two days. On this time frame, ANV is testing that breakdown area with a measly 500,000 shares -- not going to happen. Tuesday was the signature failure as prices moved over the high of the big down day and closed underneath it. We took an exit on that news. ANV should revisit the lows again and, if volume expands, then it will work its way lower as pointed out in the weekly charts. That's a classic sell signal.
Now, think about the general market in the same context. Look familiar? We'll see. Until then and until next time, just keep trading the charts!
At the time of publication, Little had no positions in the stock mentioned, though positions can change at any time.
L.A. Little, author, professional trader and money manager, writes daily on
www.tatoday.com
, a free educational site for traders and investors. He has been featured in numerous publications and is the author of
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His background includes degrees in philosophy, computer science, computer information systems and telecommunications. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, L.A. espouses a simplistic technical approach to trading the markets that is a throwback to the days of past. With a focus on swing points and the qualification of trends, L.A. provides a breath of fresh air to an otherwise crowded room of derivative indicators with the emphasis on technical minutiae.