“Kick-Off” Signal In this Well-Known Stock

A reader recently asked me if we had a “Kick-off” Signal in Harley Davidson (HOG) and indeed we did – with powerful follow-through as anticipated.

The entire event gives us a great lesson in the Kick-off Reversal Signal, with the special emphasis on two-timeframe confluence support (on a retracement) where the Kick-off Reversal Signal formed on the intraday frame.

Let’s take it step-by-step and learn from this excellent reference.

First, let’s build down from the higher frames – The Weekly Structure:

Without getting too detailed, we note the “Structure” (the sequence of swing highs and lows) reveals HOG to be in a persistent, long-term uptrend, triggered officially from August 2009.

Through most of 2011, the stock pulled back (retraced) to the critical confluence support level of $35.00 per share.  It was both the rising 50w EMA and the prior price swing high from April 2010.

To keep it simple, we’ll just refer to this as a “Make or Break” support level in the context of a multi-month retracement/pullback to support.

Now, we see the Daily Chart for more detail:

Again, keeping it simple, this “bearish” period on the daily chart (from April to June) was just a stable/simple pullback on the Weekly Frame.

The $35.00 level was our Weekly Reference price, and we can see a confluence with the rising 200 day SMA along with a prior tiny price high from December 2010.

Now we see multi-timeframe (Weekly and Daily) expected support at $35.00 per share.

This example is a good follow-up to my recent “Kick-off Reversal Signal” webinar from Trader Kingdom (archive).

Towards the end, I described a situation where a higher timeframe retracemet to support occurs and then explained how a trader should then drop to lower timeframes (intraday) to see developing structure and whether or not a “Kick-off” reversal signal forms there.

This situation in Harley Davidson is a great “follow-along” accompaniment to the presentation.

The chart above is “cheating” as we can see the favorable resolution of the retracement, but to understand how this would have played out in real-time, envision yourself seeing this at the beginning of June as price retraces into the $35.00 per share level.

There is a lengthy positive momentum divergence into this dual-timeframe support level as price retraces to test $35.00.

Now, let’s drop-down to the hourly (intraday) chart to assess what the structure revealed – including the Kick-off Reversal Signal:

For fun, I labeled two “Downside Kick-off” signals in early April just for additional reference.

For our purposes here, we have price pushing down into the $35.00 confluence support level as visual positive momentum divergences form in the 3/10 Oscillator.

Then, on June 6th, Harley simultaneously breaks a short-term falling trendline AND forms a Kick-off Early Reversal Signal.

#-ad_banner-#To refresh, the “Kick-off” Signal triggers when price is moving down into positive divergences and then a price swing up results in a new momentum high (new oscillator high) in the indicator while price is NOT making a corresponding new high.

This is based off the teachings of Richard Wyckoff as a “Hidden” Sign of Strength via Momentum that price does not yet reveal.

The trade generally is to buy the first retracement swing AFTER a Kick-off Signal forms, or wait to buy the actual price breakthrough above the “Kick-off” Price High (in this case, $38.00 per share).

Immediately following the Kick-off Signal on June 6th, price swung down officially into the dual-timeframe key “Make or Break” support level at $35.00 per share and then Re-broke above the falling trendline on June 14th above $36.00 (an aggressive buy signal).

Shortly after, price then officially broke above the “Kick-off” price high at $38.00, triggering a late but safe entry.

Due to the higher timeframe confluence support, the stop-loss for the bullish reversal play rested under $35.00 ($34.50 perhaps to give some ‘wiggle room’).

From there, price continued its strong impulse higher and moved quickly back to the $42.00 per share swing high, allowing for a quick swing trade that was confirmed with multiple timeframes and a Kick-off.

To recap –

We had a primary uptrend and a simple pullback/retracement to the dual-timeframe price confluence expected support at $35.00 per share.

While most traders find this to be enough information to put on a swing trade, other traders can “step inside” the developing structure to assess what’s developing on the intraday frame for clarity and better execution.

In this case, we had a positive momentum divergence into a Kick-off Early Reversal Signal and then a confirmation via a breakthrough of a falling trendline and then a break above the “Kick-off” swing high at $38.00 (late entry).

You don’t have to go to this level of detail when planning/executing a trade, but for those who want to do so, this recent example in Harley Davidson gives a great lesson in dual-timeframe confluence support and integration of the intraday chart for a clearer perception of the opportunity, entry, stop-loss price, and real-time trigger(s) as the trade develops and confirms.