US Bancorp (USB) moved up 'big' for a second consecutive day on Wednesday, rising $2.14 for an 8.3% gain, closing near the confluence of its October sell-channel trendline and $28. After a successful test of 2008 lows on Nov. 21 with a 'key reversal' doji candle (see chart below), we present empirical evidence for an eventual break of the fourth quarter downtrend.
Q: Over the course of its history of trading below the 200-day moving average, how does USB perform after recording two consecutive days that closed up 'big' with positive sessions (close > open)?
A: According to the 17 previous occurrences of this event, EventEdge indicates that USB has shown a strong bullish edge that peaks 21 trading days after the event.
Thus, the projected date for the peak of the bullish edge relative to the current event date (Wednesday, Dec. 3, 2008) is Monday, Jan. 5, 2009. USB rallies in 94% of the cases (16 of 17) by an average of 7.5% relative to the close on the event date. The one decline was 9.3%. The overall return of the 17 cases is 6.5%, which, based on the close of USB on the event date ($27.91), provides a target price of $29.72.
Look for a pullback after yesterday's 8.3% gain which pushed price up against the October-December downtrend line. Consider scaled entries on an inside-day pullback, perhaps even a partial position down near the $22.53 open gap with an increase in market volatility.
To view and modify the event parameters defining this study, click here to launch this idea with the EventEdge® tool.
Mr. Jay Pasch is a private futures and equities trader based in Minnesota. He may hold positions in the instruments mentioned in his trading ideas.
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US Bancorp - A Buy on Earnings - October 21, 2008
