Picking Strong Stocks In Strong Sectors For Big Intraday Gains

  • August 8, 2002
  • Conor Sen


After witnessing the sharp, late-day rally in the indices
on Wednesday, August 7, I thought we’d have a decent chance for some
follow-through due to the fact that “they couldn’t keep ‘em down.”  I spent
the evening going through about 15 sectors and saw that of these, only the
biotech, drug, defense, and utilities sectors were above their 20-day EMA. 

Only
biotech was also above its 50-EMA. Having seen biotech act well recently I
knew that this was the sector I wanted to watch, although not necessarily
through the
(
BBH |
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PowerRating), as Larry Connors has pointed out the tough spreads it’s
known for having.

I then scrolled through each component of the BBH to see which individual
stocks had the strongest charts. I narrowed my selections down to three:
(
DNA |
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PowerRating),

(
HGSI |
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PowerRating), and
(
IDPH |
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PowerRating). From this short list I pruned out HGSI because it closed in the lower half of
the range. 

Deciding between DNA and IDPH was tough, but ultimately I went with IDPH
because of its more mild pullback, and the “hammer” it had put in by opening
strong, giving it back, and then regaining its losses. I also noticed a nifty
formation in its daily chart where it was above three important lines of
support.

The stock opened below Wednesday’s high, and I intended to buy if it broke
through that point. It remained in this range until the fourth bar (5-minute),
where I entered at 43.01, with a stop below Wednesday’s close of 42.61.

The initial surge
was followed by an hour-long consolidation, but around 11:00 am, the stock
really took off. Once the 11:30 move occurred, I locked in my profit with the
indicated stop. From there, it was just a matter of money management. I took
half profits at 44.40 during what turned out to be the consolidation of the
parabolic spike, then trailed up the other half using big volume reversal
candles as guides. I decided against holding overnight, both because it came
back under its highs of a week and a half ago (45.35 and 45.30, respectively),
and because I thought a market-wide pullback might be in the cards.

 

In hindsight, I got
a bit lucky with the stock opening in an acceptable range, and also picking a
big up day when making the trade. However, IDPH picked up its gains early in the
day, leading the markets out of the gate and never retracing them until well
after the fact. When expecting follow through days, focusing on market leaders
is the way to capture the most reliable moves. Having a plan ready before the
market makes its move ensures that you will be the one capturing the rally, not
following it.