Want to understand Taser (TASR)? First, look at the value of seeing a broken pattern on JC Penney (JCP). (December 04, 2014)

by DAN TASR JOO TASR 
I want to look at Taser ( NASDAQ:TASR ) today. You know the big deal lately with respect to all the evil police officers that we have and wanting to keep all those guys honest. I say that half tongue and cheek and half not, whatever side of that you fall on is totally your business and frankly not any of my concern. The big stock that has been moving because of that is Taser ( NASDAQ:TASR ), because there’s now a mandate from the federal government that local authorities all wear cameras. This is in Taser’s ( NASDAQ:TASR ) business and so the stock has been moving up because of that.

Let’s just look at this thing technically. I start this with the caveat that you have to have a stop in place, got to have a stop in place. The reason I’m saying that is becaues last August, I’ll go into some detail here, not a lot but some. Last August I was on “Mad Money” talking to Cramer about J. C. Penney ( NYSE:JCP ), and how it looked like it was poised to go higher, and here was the rationale. And by the way, what I’m getting to here is the importance of stops, set them; know what your loss is.

So I was talking about it was really showing a kind of an inverse head and shoulder pattern here; with these being the three lows, and the neckline being like this. And the measured move on that from the bottom to the top, when you add it to the breakout level, which was here. And I don’t remember the exact lines, to be perfectly honest it might have been here, because this trade has come an gone a long time ago; about 5 points here. You want to get a measured move, you want to have an estimate on how far this stock can go, any stock.

If you’re brand new you may not have seen this, I did a video on journaling, we talked about that a little bit lately and one of the things I mentioned as far as journaling was that you need to have a justification for why you are getting in any stock. Part of the justification is how high do I think the stock can go if you’re going long. Like what is my price target for the stock, because if you can’t name what your intended reward is, what you’re expected reward is, then how are you going to know whether it’s a good risk? That’s really, really important.

The other part is how much are you going to risk? How much? Don’t say, “Oh, the stock here is at 9.74 so I’ll risk 9.74.” Okay if you want to ride this bad boy down to zero, if the stock breaks down, then feel free, go ahead and do that that makes you like one of the worst traders in the world. You need to have what your definition of risk is, how much am I going to lose if I’m wrong?

Only when you have the answer to those questions, what’s my expected gain, what’s my expected loss if I’m wrong, you need to be willing to accept both of those. Only after you have that information can you then make another entry into your journal, which is, why RHRN, old members know that means, right here right now, why am I taking this trade today? Why didn’t I take it yesterday? Now, maybe it’s just because you missed it and that’s okay, we miss trades every day.

Why am I taking it today vs. waiting until tomorrow? Waiting until next week? In other words is there anything compelling in the stock right here right now that prompts me to want to open the position? One of the answers to that may be, actually there’s nothing in the stock that makes me want to enter it right here right now and that’s why I want to enter it, because it’s in a trading range. I think it’s going to breakout but I don’t know for sure, but it’s in a trading range and I want to get in before it breaks out.

But, and this would be another entry in your journal, how much are you going to risk, based on all the other information here, and I’m giving you pearls here so pay attention, it really doesn’t have anything to do with J. C. Penney ( NYSE:JCP ). How much are you going to risk based on the rest of your entries? If the stock is still in a trading range and it hasn’t yet given you any indication that it’s going to breakout, then that is basically a high-risk trade, because you’re not really sure. If you’re entering a high-risk trade the only way you can risk an acceptable amount is to open a smaller position.

Now, with that said, you open a smaller position. Why would you want to open a smaller position? And this gets to what your anticipated profit is, here it was clear up at 15.00. Why would you want to get in to a smaller position? What the heck is the point? Here’s the point, because if the anticipated reward is high enough then it’s fine, it’s totally worth it to get in at an initial small position because you are going to have plenty of time to add to that position once the stock is working in your favor.

You had the advantage of getting a lower cost basis on your first buy because you bought it when you still didn’t have evidence that the stock was actually going to work just the way you had done your analysis it seemed like it was going to. Please listen to the first part of this video again because I know I explained it correctly but there’s actually a lot of concepts here.

You’ve got to know all these things; you have to know all these things before you even enter the trade. Here the biggest issue is, where does the stock have to go for me to be wrong? Does it have to be here, can it be here, can it be here? All of that is based on your analysis and on your reason for being in the trade.

So anyway, I had mentioned that we got this inverse head and shoulders and when and if the stock breaks through this neckline then we’re likely to see a continuation of this inverse head and shoulder pattern with a measured move up to 15.00. Now a couple of important things about this; first of all this is just not my wild guess that this is going to go up to 15.00, this is based on “technical analysis 101”.

It’s just this head and shoulder pattern and measured moves and stuff like that, this is not something that I invented, this is something that has been used by technicians for years, decades, probably over a hundred years, I don’t know because I wasn’t around when it first started. So what I was applying was pure technical analysis, it wasn’t Dan Fitzpatrick’s opinion or prediction, it was an observation of what’s happening here and then applying what I see happening here to just tried and true technical analysis measured moves.

Those are subject to failure and one of the things that John Bollinger, who I used to work with for a short period quite a while ago, one of the things that he had said was, everybody focuses on these patterns that are completed, they give you good information, but what they don’t realize is a broken pattern gives you probably more information because everybody sees the patterns, everybody’s looking at the same thing and everybody expects the same thing to happen.

So if what has been expected does actually not happen, if it doesn’t happen, then that tells you that there’s a whole boatload of people that are going, “Oh crap, what am I going to do now?” So his contention was that you could get more tradable information out of a broken pattern than you do a pattern that’s completed. So with that said lets look at this.

When I was on Cramer I gave a risk assessment, I said whatever the level was, if this stock breaks below this level you know this is wrong, you’ve got to get out if the stock breaks below this level. But every so often some troll pops up on my Twitter account, it doesn’t happen that often, but every once in a while some troll pops up and they typically know nothing about charting, they’re probably focused on P/E’s, and point back to this call and say, “Charts don’t work”. Okay, well that’s a bunch of hooey.

Let me go through this and then I’m going to get back to Taser ( NASDAQ:TASR ) real quick, I thought this was going to be a three minute video but it’s probably going to be fifteen. So as we go through this the stock actually works. I think it went up to 11.50, everything was good, and then somewhere soon they announced earnings and they stunk.

Still, right even at this point this head and shoulder pattern is still working because there’s such a move, it’s called a throwback. So if this was the breakout line right here, part of a head and shoulder pattern is, after the breakout the stock will often come back to test that breakout, it is called a throwback as in, the fish is too small, throw it back.

Then if the stock starts moving higher that’s actually the completed pattern. If the stock instead of course breaks down, well that’s a broken pattern and that’s that, and all bets are off. So lets continue to see here. This now is a stock that you absolutely don’t want to be in, because the head and shoulder pattern has been trumped, it’s been nullified, it’s null and void, it’s yesterday’s potential news.

Again, I’m pointing this out because you need to apply these lessons to all of your trades, if you are trading technically. If you’re not you’re probably not making very much money. You need to apply this lesson to all of your trades. I’ve said this for 80 gazillion years, charts are not predictive they are informative. If you think that a certain pattern, a certain trend or whatever, predicts things, I’m telling you right now you are absolutely barking up the wrong tree.

You do not see predictions in these charts. What you see are the dynamics, the actions of buyers and sellers. In order for me to understand this stuff ages ago, I came up with a method of analysis in understanding charts, called the “Balance of Power,” which I’ve recently change to calling it the “Power Cycle” because balance of power is a priority indicator of Warden here. What it means is there are buyers, which are potential sellers. Once those potential sellers sell they are potential buyers, potential buyers are just going to buy. So it kind of rotates around here.

What we’re seeing here is that all of the folks that are long, I don’t care where you’re long from you’re a potential seller. So the potential sellers are coming out. Now if you’re a potential buyer are you going to look at this move and say, “OMG, here’s the chance I’ve been waiting for, I’m going to buy J. C. Penney ( NYSE:JCP ).” No! You’re going to look at this and say, “Well shoot, that doesn’t look good.” You’re going to back away and you’re backing away, everybody’s still selling so the stock’s going to move lower.

At some point the stock gets down to a point where value traders, value investors look at this and they see whatever the P/E is and say, “Well hey man, J. C. Penney ( NYSE:JCP ) is selling at a discount. It was up here now it’s down here. Their stores kind of stink and all that, but the stock is worth something.” So they may start buying and that will halt the momentum, it will slow the momentum of the downtrend. So that’s kind of what you’re seeing here.

Okay, we’ll keep going, keep going; now the stocks moving up, maybe there’s a few more buyers that are coming in, they’re more aggressive than sellers that’s why the stock’s going up, but still remember this was a key point here. So the stocks moving here, drifting inward but still this is a busted trend. The 200-day moving average is flat, the 50-day is down, the 20-day looks like it’s going to zero by tomorrow and the price is right around there, so this is a busted stock.

Now it’s in a squeeze, “Hey, it might go up, it might go down, but it might go up so we’ll watch. Oh crap, yesterday I thought it was going to go up, today it’s going down. What am I going to do?” Okay, this chart is not informative right now at all really, it’s just telling you it’s in a trading range. You don’t know which way it’s going to go, but you do know that everything is drifting lower.

So now you kind of get the sense here that there is not enough aggression in buyers to push the squeeze to the upside so it’s probably going lower, at least quote “not going higher”. So, “Oh my gosh, maybe I was wrong here.” By the way all of this time you’re probably thinking well one day is bullish, one day is bearish; of course, any fool can see that. No! Any fool can’t see that.

What I’m saying is, during this part of the stock action you are not long or short, you’re flat. You are a potential buyer or a potential seller, you’re just waiting to see what the stock’s going to do, you’re not predicting. “Oh, maybe the stock’s moving higher, maybe not. I guess it’s not.” So you get my point, I can keep doing this but there was no reason to be in this stock; there was every reason to be out of this stock back here when the stock broke down.

Which by the way was actually not to low from where it was when I was on Cramer saying you know you can buy this stock. I think it was at like 9.54 something like that. This is where the stock is now, all right, 6.73. Are you going to buy this stock now? No. If you’re going to do anything sell this stock. I think it’s a little risky to sell a stock that’s just at 6.73, I like higher priced stocks, but if I had to choose, and happily I don’t, I would choose to sell this stock rather than buy it.

Why? Because the inverse head and shoulder pattern, wherever this was, was broken? No, that is news from two months ago. This doesn’t even matter any more, we don’t care about any of this stuff, we don’t care. All we care about is this; the stock had been trading sideways. If you really wanted to zoom in you could say, “This is a failed breakout, it’s just really pushing the top of the channel a little bit, but it’s a failed breakout.”

This however is a failure of support; you know basically this here, now it’s back to this level. But my point is, this stock could come up a bit tomorrow, the stock’s actually down over three or four trading days, 16 percent, that’s about a time that shorts may start covering a bit. What I’m telling you is the stock is busted, the chart is busted and you don’t want to be long right now. So I’ll go back again, I assume some to these trolls get this “Chart of the Day”, I’ve been covering this stock ever since Cramer, walking it all the way through on these “Charts of the Day” or in the premium membership, so this should not be news to you.

If you’re still holding this stock looking for a $15.00 price target you’re really holding it for the wrong reasons. I wanted to point that out, I’m not defending myself, I said back here, I think J. C. Penney ( NYSE:JCP ) is going to go to $15.00, so clearly the analysis I had did not play out. So was I right or wrong? I was wrong. There’s no question about it. But as a trader you don’t sit here and stubbornly stick to your guns and say, “You know what, the chart is not doing what it’s supposed to do.” How many times have you done that? “Well the market does not get the wisdom of my analysis. I think the market’s wrong.”

The market is never wrong, the market is the market, and it doesn’t care about being right or wrong. It’s just a big group of traders who are buying and selling, it’s just a crowd, period. So you’ve got to understand that, and once you start understanding that type of thing then you are going to be a much better utilizer of charts. You’ve got to understand this because if you don’t understand that then seriously, just don’t use charts, don’t use them at all, just don’t use them, because they’ll just mess you up.

Now, let me get back to Taser ( NASDAQ:TASR ). Here’s the analysis on Taser ( NASDAQ:TASR ); look at it, this is in like the strongest configuration you’re going to find. The price is above the 20, which is above the 50, which is above the 200, all of whom are moving higher, so this is in a very strong uptrend.

Now at some point this uptrend is going to end but if you look at the weekly chart you will see choppy, choppy, choppy but the stock has basically been in like a 50 percent range of consolidation over the past year. It’s just now breaking out, the stock’s just now breaking out and there’s a reason for it. How much is this stock going to move higher because of that news? At some point this story is going to fade, look what happened to the Ebola stocks, they’re not particularly performing well.

With what I just said in your mind think about this. I would buy Taser ( NASDAQ:TASR ), there’s only like a 3.3 short interest ratio on this. In other words if only the shorts were buying based on the average volume it would take them three and a half days to cover, which isn’t a high short interest, so this is not a short squeeze now, this is just real buying.

So I would say as long as the stock remains above this 20-day moving average the uptrend is going to be intact. It’s walking along the upper Bollinger Band and that’s the strongest thing a stock can do. It gets over bought and just stays that way. So in my view Taser ( NASDAQ:TASR ) is a buy, I think it’s a buy on any kind of dip and maybe what you want to do is use a 10-day moving average.

Any pullback to the 10-day moving average is your buy point, as long as the stock stays above there. So you just have to respect the trend and know that it can end and that means that you say, “Hey, I think that this stock’s going higher, I’m going to go ahead and buy it.” That’s fine, and as long as the stock keeps going higher you’re good. If it starts reversing and starts doing stuff that you don’t expect it to do then you need to not wait for the market to figure out that you’re right and the market’s wrong. Instead you just get out of the trade.

This is probably the longest “Free Chart” video I have ever done unintentionally, but what I hope is that this gives you some sense of trading. Being right is easy when you’re right, when the stock is moving the way you thought it was going to move it’s all good, life is good, you’re skinnier, you’re better looking, and you’re younger, and your knees don’t hurt any more, everything is good.

When a stock doesn’t do what you expect it to do, when it does the unexpected that’s when you’ve really got to buckle down, you’ve got to look at the reason why you did what you did, you have to look at the exit that you have chosen before you entered the trade and you have to respect and support that exit and you’ve got to be out of there.

I hope this helps, and apply the stuff that I’ve been talking about here to everything that you are doing, all of your trading. Now, what’s the price target here? Shoot, I don’t know, I doubt that it’s all-time highs because I remember at one time this thing was a real big one. But it doesn’t matter it’s at an all-time high on this chart and that’s all I care about. I don’t know, with this kind of momentum I would say maybe $30.00, you could say a different number and be just as creditable as me. I would say $30.00 maybe, it could go $6.00 which is 25 percent that’s what I would hope for on this stock. and then you set your stops accordingly.

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