- What you can learn from the epic blow-off top in ATER…
- A breakdown of how blow-off tops lead to first red days…
- How watching price and volume can help Evolvers identify these moves on their own…
Hey, Evolver.
First, I’d like to mention that today is Yom Kippur, the Jewish Day of Atonement. As we say in Hebrew, G’mar chatima tova…
It’s an important day for Jews, but a normal day in the stock market. As usual, another high-flying momentum stock is crashing back to earth — Aterian Inc. (NASDAQ: ATER).
After surging nearly 500% in three weeks, ATER hit a nasty first red day on Tuesday, plummeting 35%. Of course, I bought puts.
Let’s go over the bearish indicators I saw leading into ATER’S blow-off top. Read on to learn how you can potentially spot similar setups in the future.
ATER Goes Parabolic
ATER 15-day daily chart (Source: StocksToTrade)
ATER’s recent rally is impressive. Day after day, it surged higher on increasing volume. And let’s not forget the big picture. Zooming out even further, three weeks ago the stock was trading for under $4…
After finding support in the high $3s, ATER had taken off on an exponential ramp of volume and price. Heading into Tuesday, ATER had been green six days in a row.
The stock blasted through $10 and $15 and was rapidly approaching the psychological resistance level of $20.
Blow-off Top Signals
Just like UPST getting rejected right before $300, ATER got rejected right before $20.
Do you see the pattern yet? These aren’t coincidences…
Stocks that are up hundreds of percent in a few weeks generally get rejected at predictable levels — usually big round numbers.
Additionally, you can potentially bolster your conviction in an imminent crash by paying close attention to the daily trading volume.
I’ve mentioned this before. When a stock’s hitting a blow-off top, the volume is usually two to five times the average daily trading volume.
This is exactly what we saw in ATER on Monday. In the previous three sessions, ATER traded an average of 81 million shares.
But on Monday — in a perfect confluence with the $20 resistance — ATER traded a whopping 240 million shares.
Alerting the Puts
Once I’d seen the topping signs I look for — it was time to execute my plan.
- I bought the 9/17 $15 puts early Tuesday morning, for a price of $1.54.
- I alerted this to Evolvers with a price target of $12–$13…
- Then I sold the puts just over an hour later during a massive flush, for a price of $2.17 — and a profit of $14,934.82.*
I didn’t want to get overexuberant, but I wish I’d held onto a few contracts…
By Wednesday, the puts were trading for $5. To any Evolvers who held into Wednesday, well done.
Lesson Summary
- ATER displayed nearly all of the indicators I look for in both blow-off top and first red day patterns…
- From round-number resistance at $20 to 2.5x average trading volume on Tuesday — this was a heck of a setup…
- Congrats to Evolvers who banked on this play!
Conclusion
I hope you’re starting to see the commonalities between the charts I watch week after week.
ATER is a picture-perfect example of some of my favorite topping signals. Take note of these moves…
It was a gorgeous blow-off top, followed by a textbook first red day. These are the setups we patiently wait for.
Watch and learn,
Mark Croock
Editor, Evolved Trader Daily
P.S.
*All content in this newsletter is intended for educational and informational purposes only.
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