Do The Obvious

  • June 22, 2001
  • Eddie Kwong

If every trader knows
about it, or it looks too obvious to everyone, is it no longer good
information? If you are a contrarian, you will do the exact opposite of the
obvious, and it sometimes pays off big. But today I want to talk about doing the
obvious. If the market is going up, I will concentrate on buying. If I’m
observing a downtrend, my focus will be on selling.

Here is a daily chart of LaBranche & Co (LAB)
as of the close of 6/21/01. As you can see, the stock is in a downtrend. It
broke down below its 50-day moving average on June 13 with less-than-average
volume, but on June 21, LAB declined more than two points on nearly four times
its daily average volume. You might have guessed it already. My plan for today
(6/22/01) is to sell LAB as soon as it falls below yesterday’s low. Indeed, I’m
attempting to do the obvious. 

The red horizontal line indicates the level of yesterday’s low, and the black
indicates the low set on April 4. LAB’s opening was delayed about 10 minutes
this morning after receiving a reduced earnings outlook for the second quarter.
The stock broke down below yesterday’s low at 9:40 a.m. The second short
opportunity came at 10:40 a.m. when LAB fell below a slim jim. Finally, the
third opportunity hit at 10:55 a.m. when the issue broke down below the April 4
low.

Sometimes it pays to do the obvious.

Have a great weekend,

 

Eddie