Here’s one of my favorite daytrading patterns
The stinky 2.50’s level
is a stock price phenomenon where momentum tends to stall out and
exhaust in $2.50 increment levels (example $10, 12.50, 15, 17.50, 20, 22.50 and
so forth). When stocks breakout or breakdown, these 2.50 levels tend to be de
facto support and resistance levels once you factor in a .10 overshoot. This
means that if a stock rallies higher into 32.50 levels, we expect 32.60 to be
the coil resistance on the 2.50 overshoot. In fact, 32.40 x 32.50 x 32.60 is the
stinky 2.50’s range. If a stock slips down through the 32.50 level, we expect
32.40 to hold the momentum support. The faster a move is to a 2.50 level the
stronger the resistance. This is especially true on sharp momentum moves up and
down and also on gaps. Knowing these levels ahead of time allow you to do two
things well. It allows you to SELL your longs into the coil resistances as well
as short hard spikes.
Amgen
(
AMGN |
Quote |
Chart |
News |
PowerRating) was a great example yesterday
as it gapped up over $2 on acquisition news. AMGN took a spike off the open into
the 79.50 levels. We promptly stepped in SHORT at 79.45 knowing that 79.50 and
then 79.60 would be the ultimately momentum resistances on the 2.50 levels. Once
the 1 minute stochastics peaked out, AMGN exhausted at the 2.50 levels and
promptly slipped back down as it channel tightened back to the 3 minute 5 period
moving average at 78.80 for nice quick .60 scalp.
These stinky 2.50s levels work great in post
market action especially on news or earnings. Anytime a stinky 2.50 level is
initial hit, expect an exhaustion back the other way.
The noodles (Nasdaq 100 eminis MARCH contracts)
are still tight at 1718 x 1714.50 with a lack of channel. The stochastics look
like they are coiling up setting up a potential for a daily pup which would take
noodles to the 1732 upper daily Bollinger bands.
Feel free to send any questions or comments to
jay@undergroundtrader.com
Jea Yu
Jea Yu has been involved with
the equities markets for over 10-years. He specializes with intraday trading in
the U.S. equities and futures markets. To receive a free 7 day trial to Jea
Yu’s Underground Trading Pit,
click here or call 888.484.8220, ext. 1.