From LLY to IWM: How Price Levels Define Risk and Reward
Over the past three weeks, the high probability trades have performed with a high level of accuracy. These setups always include a target price and an invalidation level which, in most cases, is the Central Weekly Level (CWL).
The purpose of posting targets is to establish an objective metric based on price action. This gives you an edge in anticipating potential reversals, which is why targets are placed at these specific zones.
Take this week, for example. The Weekly Compass anticipated a bullish move for $Berkshire Hathaway(BRK.B)$ , targeting $505.4 for a 1.2% upside. Price reached that level as early as Monday afternoon but retraced quickly on Tuesday. This illustrates the importance of using levels: once a target is reached, it becomes new support. If that support is breached (as happened on Tuesday), profits should be locked in.
Why set the new level conquered as a stop? Because price can continue running. This occurred with $Eli Lilly(LLY)$ , which targeted $1,047 (1.9% upside) but extended to $1,066.5 for a 3.8% rally on Monday. Notably, $1,065.5 was one of the key levels provided on the S/R levels and in the Weekly Compass; after hitting that milestone, the price reversed sharply. Premium subscribers, however, had full visibility of the layers above the initial target. Below is a segment of the chart from the Weekly Compass, with the key levels listed on the left:
Conversely, $iShares Russell 2000 ETF(IWM)$ was a high-probability bearish setup. The price successfully dropped to $249.9 (-1.6% decline), and as that level breached, it is now aiming for the next support at $245. Below is a segment of the chart from the Weekly Compass, with the key levels listed on the left:
While these three forecasts hit their targets, not every setup plays out. $Palantir Technologies Inc.(PLTR)$ for instance, had a bullish setup targeting $190, price action was bullish on Monday but the momentum faded. In this scenario, the CWL served as the clear invalidation reference, signaling an exit when $183.9 was lost and protecting capital from the recent selloff.
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