Here Are The Ingredients For A Nice Short Sale
Given that it is Friday, the UN deadline for its
report on Iraq is Monday, the President’s State of the Union speech
next week, and the fact that we cannot escape this trading range, I will go out
on a limb and say that with the exception of the opening, I am expecting another
quiet session. Bear in mind, despite the drastically shortened trading day,
opening hour only, that is where you can still pull out full-time gains. Heck,
work for an hour, not a bad job! Naturally, as traders (Type A personalities) we
are never satisfied and are always looking for the next opportunity, but let’s
face facts, the market is only dealing a few hands a day, deal with it. (No pun
intended.)
As I have been saying recently, opening reversal trades have been the
bread-and-butter, yesterday was no different. I mentioned in
yesterday’s column, that I not only was looking to fade the gap opening, but
keeping an eye on HPQ,
TYC and MWD specifically. My
target, once it opened, was MWD. Take a look at the chart below:
Notice how the stock opened up much higher, blowing right through its upper
Bollinger Band? The S&Ps also gapped up, but
it was not nearly as dramatic. Â
That simple relationship is one piece to the puzzle. Highly correlated stocks
will typically trade in tandem with the futures, in this case, there was a very
slight disconnect. Secondly, it is simply the nature of stocks to fade their gap
opening. When you time that fade entry with a subsequent move in the futures (in
this case lower), you have the ingredients for a nice short sale.
I have mentioned several times that the gap opening itself is not reason
enough to jump right in. It requires observation of the price action. In this
case, is the offer still being taken at a feverish pace, or are there a lot of
trades taking place, yet the offer is still there? These subtle clues are what
help you determine the entry price, as well as a thrust lower in the futures.
When all was said and done, the trade was worth close to 45 cents, a few
thousand shares and essentially your day is done unless there are other
opportunities. (I saw very few the remainder of the day.) Yes, it traded lower
afterward, but at the time, the downside momentum appeared to be waning. Also,
remember, these are specialty trades, they buck the trend and are only designed
for the opening or any time a stock completely blows out of its range on a quick
spike.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| 901 | 1041 |
| *893* | 1031 |
| 884 | 1020 |
| 875-77 | 1016 |
| *868* | 1011 |
| *858-61* | 1002 |
| Â | 993 |
| Â | 989 |
| Â | 983 |
| Â | *980* |
As always, feel free to send me your comments and
questions.