When A ‘News Flash’ Might Mean Reversal Time
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One of the strategies that we’ve
emphasized at Tradingmarkets has been the news reversal play. One of the
classic methods for trading this strategy is based on ‘fading’, or establishing
a position in the opposite direction of the opening price gap, as the stock reverses
direction back thru the prior session’s high or low. The trade works
consistently over time due to the temporary imbalance, that once filled, often
results in a reversal of the price action as the ‘smart money’ works their
newfound inventory off at price levels beneficial to their trading accounts.
Quite often during the trading day you might be
able to find ‘off shoots’ of this strategy that are setting up as potential
‘reversal worthy’ stocks, due to an intraday news story. I personally use
Briefing as my primary new source. They are an excellent source for staying
abreast of market breaking news, which as you might guess, lends itself to this
intraday strategy. This intraday strategy also looks to profit from the
‘temporary imbalance’ that might exist as a ‘breaking news’ flash hits the tape.
As usual, your odds will improve if the daily technical picture is also
confirming the reversal play by way of moving averages, testing of prior lows,
Fibonacci levels, or any other technical tools that you like to use as
background evidence.
Due to the fact that these are intraday ‘news’
alerts, you’ll find that most of them, if they do set up as a playable pattern,
resemble the TrapDoor reversal strategy. The TrapDoor is part of Kevin
Haggerty’s arsenal of Opening
Reversal or ‘OR’ plays that are usually initiated in the first 30 minutes of
trade.Â
In today’s session it was pointed out, almost
mockingly, that OmniVision
(
OVTI |
Quote |
Chart |
News |
PowerRating),was probably a good
reversal candidate. But, make no joke about it. By the time the ‘news flash’
on Briefing was alerting investors to the ‘heavy volume, lows of the day’
situation in OVTI, the stock was showing very real signs of being a potential long reversal play. The intraday pattern most resembled the ‘Kings & Queens’ version of
the TrapDoor as it tested Friday’s lows, which were slightly below the 20-Day
EMA. So, if you like to trade reversals, maybe you can get ‘in the spirit’, by
looking at what ‘they’re saying’ intraday.
Chris Tyler
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