Pinch Plays

Invest Like A Pro! > Indicators > Pinch Plays

Linda Raschke wrote a book called Street Smarts with Larry Connors.  This is a great book.  One of their signals is called an Anti.  They use a different form of MACD or Stochastic to find this signal.  However, the concept is the same.  We want to find when the Signal line has turned or is trending and the MACD moves counter to it.  It causes the two lines to pinch together for a brief period without causing a crossover.  The weekly chart of Apple Inc.  (AAPL) from 1999 shows back to back Pinch signals

after price emerged out of its base.  Typically, price will pullback 2-3 bars or will drift sideways to alleviate the short term overbought condition.

Sometimes these signals will take place following momentum divergence (discussed next) or in conjunction with divergence patterns.  Once again, the best signals will usually emerge when there are signals from the price structure and the MA lines to confirm. 

The chart of Pepsico Inc. (PEP) from 2018 is above.  Price breaks the trendline (step 1) and then tests (step 2).  This process is also the 40 to 18 bounce pattern discussed prior.  During this rally to the 18 MA line, MACD is unable to regain its Signal line causing a minor pinch to develop.  This gives us enough evidence to sell as soon as 18 MA line is re-broken instead of waiting for step 3 or the break of the 40 MA line.  One of the keys to this signal is watching the price action.  Many times, the MACD line will only tighten to the Signal line slightly so focusing on the counter trend move in price helps this pattern to become easier to recognize.  In addition, the first two pinch plays are the highest probability and then the odds start to drop off somewhat due to the longevity of the trend.  In this example, the reward to risk improves dramatically using this entry trigger rather than waiting. 

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