Anticipating The Failure, Anticipating The Bounce
It is not uncommon that stocks
make measured moves within clearly defined trends. QLGC has been in a
downtrend since May. Most recently, a
pretty clear channel has been traced from the middle of July until now. On Sept.
11 you will see QLGC has been repulsed at its downtrend line, obeying this
channel.
This morning I traced out a FibonacciÂ
clone based on a move
from Aug. 22, a high in the downtrend
channel, to
Sept. 4, a low within the channel. By cloning this measurement from the
next high in the channel, which occurred on Sept.11, I arrive at a 100%
measured move at 28.86. With background of oversold conditions in the major indices, an
elevated VIX stretching from its 10-day moving average,
and very high Put/Call ratios today and yesterday,
I set my sights on the 29.86 area as a short-covering focal point, to possibly give me
a high-probability long trade. On the
five-minute charts a rapid plummet to this 100% extension area is traced out.
28.86 holds to within .01, and I see on the tape that the selling has slowed. I
enter a modest-sized position long at 28.90. As the reversal is confirmed, I add
to my position. The stock trades up past 30 by early afternoon, giving me aÂ
decent profit.
Volatile stocks in channels can move from one end of the
channel to the other in an uneven manner, with overnight gaps and intraday
reversals. In this situation, trading against the longer-term trend,
I prefer to take profits (or cut losses quickly) that day and look to
continuation trades in the same direction the next day.
Further, with QLGC in a downtrend and a general bearish
environment, I will look to take a short position after the bounce appears to
play itself out, using similar criteria.
David Janis
lives and works in New York State. He trades stocks employing various strategies
for intraday and swing trades. He also deploys capital for longer-term trades
governed by macro timing strategies.
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