BattlePlan Trade of the Week: Selling SUNH Into Strength
Volatility in stocks continues to be the order of the day as a surprise, coordinated 50 basis point rate cut between central banks in the U.S., Europe and Great Britain are deployed in an effort to shore up confidence.
Led to water, can the central banks make lenders lend? So far, in the first hour of trading, traders are in a buying mood. But it remains to be seen just how long this mood of buying lasts.
We have been in a buying – and selling – mood in the BattlePlan this past week. And while our profits this past week were not overwhelming by any means, we continue to do the work of hitting singles and doubles, just getting on base and taking the pitches the markets give us.
We exited two positions this week for modest gains of just under 2%. The more interesting of the trades was the one we took in Sun Healthcare
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PowerRating), in which we got long on September 24th and exited on October 2nd.
Sun Healthcare had declined for five consecutive days when we spotted the stock as a potential trading candidate to the long side. We saw a stock that had a Short Term PowerRating of 8 – actually, SUNH had displayed a Short Term PowerRating of 8 for four consecutive days as the stock moved lower. Just as compelling was SUNH’s 2-period RSI of less than 2. Recall that we have discovered that stocks that have 2-period RSIs of less than 2 and are trading above their 200-day moving averages have produced positive returns in one-day, two-day and one-week timeframes.
We took a long position in the stock early in trading on Wednesday, September 24th, and began waiting for our standard exit: a close above the 5-day moving average.
It took more than a little patience. SUNH continued to move lower for the next few days before three-days of sideways trading right at the 200-day moving average put an end to the decline. On October 2nd, SUNH gapped up at the open – hurdling its 200-day moving average and slicing through its 5-day moving average as if it were a finish line.
Long at 15.33, we got our exit signal with a close above the 5-day moving average at 15.60 for a gain of 1.76%. What is interesting is that the majority of traders who follow the Battle Plan exit on the open of the following day rather than at the end of the day when the stock closes above its 5-day moving average. This would have let traders out at an even higher level, near 15.86, for a gain of more than 3%.
If your trading has gotten tougher over the past weeks and months, then consider a free trial to our TradingMarkets Battle Plan for Stocks. Every day we’ll provide you with incisive, before-the-bell commentary and analysis on the day’s markets to help put your trading in context. We’ll give you suggested entries and exits for trade opportunities that may be only hours away. And we’ll give you what many other people can’t: model-driven percentages so that you know the historical win rate going back to 1995 for every single trade idea- long and short.
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David Penn is Editor in Chief at TradingMarkets.com.