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Microsemi - MSCC and Celestica - CLS at Trader’s Narrative

Microsemi - MSCC and Celestica - CLS

Yesterday after the bell, Microsemi released their quarterly earnings report and gave positive guidance for the upcoming quarter. This morning, propelled by that news and upgrades, their stock gapped up above previous resistance on the daily chart:

MSCC 15 min chart.png

The first candlestick was a wide range bar which expanded price 4% from $24.67 to $25.64. The second candle was narrow range and closed down. But price remained above the top half of the first wide range candlestick. The third candle was an even narrower range candle which closed down. At this point price had contracted quite a bit and I was expecting it to expand higher and continue.

A long on the break of the third candle’s high was triggered. However, price quickly fell leaving a reverse hammer. Oh-oh. The following candle took price below the stop loss and much lower. Obviously the momentum was over as by mid-day MSCC had touched the low of the day.

So what happened? Why did this setup fail?

Perhaps the first long wide range candlestick was simply too wide range and spent all the fuel in its initial surge.

But then, look at Celestica:

CLS 15 min chart.png

Celestica opened on a gap up and continued to run higher. On the first candlestick, price rose by 6.5% ! That’s significantly higher than Microsemi’s first candle run. But in the case of Celestica, momentum prevailed and price continued to climb much higher.

One possible entry was the break of the second candle’s high (green line) which was also just clearing the opening range’s high. The second entry was on the contraction that followed shortly after (green circle). On a daily chart by the way, Celestica had a weaker gap up since it hadn’t really cleared previous resistance. But just like Microsemi, its gap up had broken the downtrend of late.

So why did Microsemi’s intraday pattern fail while Celestica’s succeeded? I don’t think it was anything more than just happenstance.

Beyond a certain point, fine tuning a setup in order to increase the win rate is futile because nothing is guaranteed and nothing has to always work in the markets. Searching for certainty in an inherently uncertain environment is a disasterous endeavour. That’s why money management and risk control are paramount.

By the way, had you taken both trades, one would lose you 1 R while the other made you around +4 R: net +3 R. Not bad.

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4 Responses to “Microsemi - MSCC and Celestica - CLS”  

  1. 1 Clive J

    Hi Babak,

    Great blog & interesting question you pose.

    I didn’t see either stock at the time, but my take on it (albeit with hindsight)is v simple -

    CLS a clear buy on break of 5th bar high, nice wedge higher lows all the way and v tight stop. The market was also going well at this time.

    MSCC bars 2-4 show support above 50% of 1st bar high BUT the negatives are lower lows and longer tails. I would look to go long, but need to see a bullish upbar - preferably a hammer around the support before going in, the upbar/hammer low providing the stop, and the initial target being the HOD.

    I’m no expert but I don’t see why I would want to go long on the close of bar 3 or 4?!?

    Have a good weekend,

    Clive J

  2. 2 opw

    You say you should not look for certainty, and you are absolutely right on that. One of the things a trader must learn is to accept losing trades. However, I find there is nothing wrong with trying to improve the odds and increasing profitability. On the contrary… to me that is what trading is about.

    I use my trading log for this ‘futile fine tuning’. I save all the charts of past trades (several timeframes in 1 view) and if I have an idea I go back over my trades and see if it would improve the endresult. Usually it doesn’t, but sometimes it does. I then incorporate it in my routine…

    On these ‘dummy’setups I started to look to the 1 min chart, to see “what’s inside” so to speak. I look for bullish patterns.

    So, at triggertime the MSCC 1 min chart to me looks more bearish then the CLS chart. The one showing a base near the
    upper half of the last down move (CLS), the other (MSCC) showing a base near the lower half of the last downmove.

    The choice would not be hard… I think.
    Does this guarantee the outcome? Nop… afraid not, but judging by the results in my trading diary, it improves my end result.

    PS love your clean charts, they look a lot like those of the chairman :)

  3. 3 bjk

    Isn’t the second Microsemi candle dark cloud cover, and bearish? Whereas the Celestica dark candle is indecisive, ie more of a spinning top.

  4. 4 Babak

    Clive: the entry was based on a ‘dummy spot’. In case you don’t know what that is check out Maoxian’s blog.

    opw: I agree, that’s why I said “beyond a certain point”. You have to draw the line somewhere. I haven’t tried looking ‘inside’ by using very short term time intervals but I’ll give it a whirl. Thanks for the comment.

    bjk: no the second candle is an inside candle, not dark cloud cover. It might be a bit difficult to see the upper wick as it coincides with the start of the day’s trading and has another line delineating it.

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