Fading The Gap
Good news. First, my computer has been
restored back to optimal health (thanks John Emery), and second, there appears
to be some encouraging news in Chip Sector.
The latter, naturally, will be the one which offers us traders some
opportunities. In fact, with earnings season getting into full swing, these
aftermarket news events present ripe trades on the opening.
Granted, the comments by Novellus
(
NVLS |
Quote |
Chart |
News |
PowerRating) and Texas Instruments
(
TXN |
Quote |
Chart |
News |
PowerRating)
appear to be more of the same vague, hollow promises, but it is enough to excite
traders and investors. That is what we need for HVT.
Depending on how these stocks open is whether or not they offer a quick fade.
I will be watching Texas Instruments very closely on the opening. I suspect
that the stock will gap up. In fact, the pre-market shows an opening price of
around 33.50, as of 5:30 AM PST. Given the New York close was 32.13, that would
be a sizable move up. Contrary to what some of you may be thinking of doing, the
best trade is to fade that opening print. Some traders will simply have an order
in to short the opening print since it will be on an up-tick. I personally do
not recommend that approach. While the odds of the opening move being faded is
very high, I prefer to wait and watch the tape for a few prints before I
establish my short. There are rare occasions where the stock will continue its
ascent, stopping you out, only to see the stock fall moments later. A really
good signal is to break below the low print of the day. The exit strategy is
rather simple: Either you are stopped out, 1/4 point stop loss at most, or you
determine the exit by simply watching the price action in order to determine
when the initial selling pressure abates. Remember, the news was positive, and
in this case, you are bucking the short-term trend, so don’t fall in love with
the position. It is a quick scalp period.
This pattern can be played out when stocks gap down as well. So, with earnings
coming out over the next couple of weeks, I expect to be doing several of these
trades on the opening. Tomorrow I will illustrate on a chart how the TXN
trade played out.
While writing the column, March Housing Starts
were just released. They came in weaker than expected, adding even more
confusion to the recent flood of data which has been a mixed bag. It appears as
though the market has shrugged it off, focusing instead on the news from the
chip sector.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| 1136 | 1418 |
| 1132 | 1401 |
| 1126 | 1386-87 (confluence) |
| 1116 (confluence) | 1363 |
| 1106-08 | 1344 |
| 1097-98 | 1336 |
| 1083 | 1314-15 |
| 1074 |
The daily chart of the Nasdaq futures does appear to be oversold, as
indicated by the nice bounce of the February lows. Meanwhile, the S&P
futures are forming a bear flag. This will be a pattern to keep an eye on.
As always, feel free to send me your comments and questions. On Friday, the
last piece of the four-part series on Single Stock
Futures (SSFs) will appear. This week I will be discussing some of
the strategies I plan to employ. These products have suddenly opened up several
more approaches that will not only complement my existing style, but also offer
a few stand-alone strategies. Click
here to see the first 3 installments.
As always, feel free to send me your comments and
questions. See you in TradersWire.