As of 06/01/2020
  Indus: 25,475 +91.91 +0.4%  
  Trans: 8,966 -3.88 0.0%  
  Utils: 815 +8.41 +1.0%  
  Nasdaq: 9,552 +62.18 +0.7%  
  S&P 500: 3,056 +11.42 +0.4%  
YTD
-10.7%  
-17.8%  
-7.3%  
 +6.5%  
-5.4%  
  Targets    Overview: 05/29/2020  
  Up arrow27,000 or 24,000 by 06/15/2020
  Up arrow9,800 or 8,200 by 06/15/2020
  Up arrow850 or 750 by 06/15/2020
  Up arrow9,800 or 9,000 by 06/15/2020
  Up arrow3,200 or 2,850 by 06/15/2020
CPI (updated daily): Arrows on 5/15/20
As of 06/01/2020
  Indus: 25,475 +91.91 +0.4%  
  Trans: 8,966 -3.88 0.0%  
  Utils: 815 +8.41 +1.0%  
  Nasdaq: 9,552 +62.18 +0.7%  
  S&P 500: 3,056 +11.42 +0.4%  
YTD
-10.7%  
-17.8%  
-7.3%  
 +6.5%  
-5.4%  
  Targets    Overview: 05/29/2020  
  Up arrow27,000 or 24,000 by 06/15/2020
  Up arrow9,800 or 8,200 by 06/15/2020
  Up arrow850 or 750 by 06/15/2020
  Up arrow9,800 or 9,000 by 06/15/2020
  Up arrow3,200 or 2,850 by 06/15/2020
CPI (updated daily): Arrows on 5/15/20

Bulkowski's CNO Trade 2.0

 

This article discusses a trade I made in Conseco that gained 90% in two months.

CNO Entry Position

Conseco (CNO) on the daily scale.

On the right is a chart of Conseco on the daily scale. It's a stock I have successfully traded before.

I bought the stock after it retraced 38% of the rise from 7/28 to 8/4/2009 (not shown). I missed the low on entry by a day (A) because price dropped the day after I bought. Since this is a very volatile stock, I didn't use a stop. The position size was 1/4 normal, so if the company ran into trouble and price dropped, it wouldn't be too painful.

Anyway, the stock made a nice run up from the low at A, ending at B. If you look at the price and time scales, you'll see that it doubled in less than 2 months. That means it qualifies as a high and tight flag chart pattern. The flag is a long one, from B to C. The pattern confirms at D, when price climbed above the high shown in the flagpole (AB). I illustrate confirmation by a thin horizontal green line connecting B and D.

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CNO Price Gapped. Why?

Why did price gap higher from C to D? The answer is manifold. Moody's boosted its outlook to positive from negative, citing efforts by the company to pay down debt. FBR Capital Markets upgraded the stock to outperform from market price (whatever that means) and raised their target to 9 from 4. The stock gapped 29% higher on those events.

I have written about the inverted dead-cat bounce, most recently in YRCW. I made 34% in one day. This trade is another example of that chart pattern.

With price shooting higher in one session and given that the company appears headed away from bankruptcy, this looks like a long-term winner. There's just one catch. To help pay down debt and improve their finances, I read that they plan to issue something like $200 million worth of stock. If and when they do that, this stock will get clobbered, probably to the tune of 10%, more or less. I didn't want to see my gains evaporate, so I sold it at the open the next day.

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CNO Exit Position

I considered day trading the exit but am glad I didn't. The stock opened and then dropped for several minutes before recovering and soaring to a new high. My guess is I'd hold it long enough for the stock to have bottomed and then sold, resulting in a larger give back. That's only a guess, of course. I decided to avoid all of that stress of watching my stock drop, selling, and then watching it recover by just exiting on the open.

I made 90% in two months on this one.

Conseco (CNO) on the daily scale.

CNO Aftermath

I am beginning to believe that the inverted dead-cat bounce is the most important event pattern. If you fail to exit promptly, you can see all of your gains evaporate. That's not always true, of course.

I remember one case involving Southwest Airlines. Their flight attendants, after years of arguing with management, finally came to a labor agreement. The stock jumped up and I sold. Over the next few days, the stock eased lower but then started a long move up, one I missed because I had already sold the stock.

The chart shows Conseco on the daily scale. You can see how price peaked the day after I sold at 7.04 but then moved lower, hitting bottom (so far) at 5.12, a drop of 27%.

Of course, since I sold at 6.35, my savings amount to 19%, which is still a tidy sum.

-- Thomas Bulkowski

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See Also

 

Support this site! Clicking any of the books (below) takes you to Amazon.com. If you buy ANYTHING while there, they pay for the referral.

My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Encyclopedia of Chart Patterns 2nd Edition Trading Classic Chart Patterns

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