Sunday Musings (it is all about parabola)

I am thinking August  & September months are going to be all about major tech stocks and how the parabolic arc pattern plays out for FANG (not FAANG as I am leaving out AAPL for now). While I do think this pattern is going to push NFLX and FB considerably down, I am not so sure about GOOG and AMZN. They also certainly fit the pattern but might not have topped yet in my opinion.

What goes up must come down: Parabolic arc is a reliable reversal pattern but when a stock has gone parabolically bullish, it is extremely hard for any one to predict its top and bid on a reversal. However, once the price breaks below the arc, the stock can typically retrace 50 to 80% of the gains it made on its parabolic run. This pattern is generally rare but currently, especially after the 9 year bull run in the markets, we may be seeing many instances / stocks where this pattern may be playing out.

Before we get into FANG, let us see how this interesting pattern has played out in the past in respect of a few stocks & cryptos.

Bitcoin (BTC) – a recent break of the parabolic run after hitting close to 20,000. It dropped 70% from the highs

Parabola BTC

Ethereum (ETH) – a recent break of the arc and a very big reversal. In just under a month, it lost 83% of the gains it made between Dec 2017 & Jan 2018

Parabola ETH.PNG

And here is the parabola break forecast I posted on Jan 10, 2018 before that fall in ETH:

Ethereum Jan 10 2018

Nectar Therapeutics (NKTR) – another great example of parabola arc reversal. Retraced 77% of the bullish wave

Parabola NKTR

Qualcomm (QCOM) – the 1999-2000 classic parabolic run and bust

parabola QCOM.PNG

That explains it. Parabolic arc patterns are rare but can certainly lead to major reversals, after exhaustion of the run. Now let us see where we are with FANG stocks currently:

NFLX – this is a Forecast chart that I posted before the recent fall in NFLX (on Twitter & StockTwits on 7/13). My forecast was for the price to break below the arc after topping in the 400 – 450 zone. Now that the arc is definitively broken, I am expecting a further drop (retracement of at least 50% of the gains from the parabolic wave).

NFLX July 13.PNG

FB – here, the arc is most certainly going to break. A drop below 170 would confirm it. Looking now to test that support at 115 (minimum target) if 168-170 breaks this time.

Parabola FB.PNG

AMZN – this is the toughest one and I am always scared to short AMZN but certainly this fits into the parabolic pattern. It could break the arc around 1775 (OR) it could run a little more, may be to 2100-2200 and then drop to break the arc. At this time, I am not sure if last week’s ER was a good enough catalyst for the break. Gutsy bears are going to win eventually, sooner or later. (I posted this chart on Twitter & StockTwits on 7/27)

AMZN July 27 2018

GOOG – another one, but I think it is not yet ripe for a break. Some more steam may be left before it becomes a victim of the pattern.

Parabola GOOG

SPY – And finally, I have for you, the SPY chart. Tough one again – the reversal might happen right now or after a jump to the 310-320 zone but when it happens, 180 might very well come into the picture.

Parabola SPY.PNG

Let me not say all these reversals are bound to happen but based on the past, I would say these reversals are “very likely”.

So folks, what do you think? Would appreciate your comments.

Happy Trading!

 

 

 

 

 

 

About Venkat Pulakkad

Entrepreneur, management consultant, blogger & forecaster. Founder of Flourish Research Media that provides insights on markets, trading strategies & risk management. Currently an active trader with 20+ years of experience trading Forex, Stocks & Options. Areas of interest: Trend / Swing trading, Macro-tech analysis, building trading strategies, deploying Risk Management techniques, and helping / coaching traders to become successful traders. Twitter link: https://twitter.com/Flourish_Venkat      
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