Here’s How To Catch Trades At Extremes
Yesterday’s action was certainly what I was hoping
for. While none of us want to cast a seriously negative tone over the
market, it seemed that that was the only way some decent volatility was going to
come back into the market. The little squirt up on the opening was immediately
sold, and we had a pretty nice push lower. As expected, tech stocks traded
nicely to the downside with the market.
The one trade, which is a staple in this or any market, is catching trades
that take place at extremes. Yesterday, Tyco
(
TYC |
Quote |
Chart |
News |
PowerRating) was the target. If you were quick, it was worth 15-20 cents, and given
that TYC is thick and liquid, moving large
share size is not a problem. Fifteen cents on a few thousand shares gets your
day off to a good start. And quite honestly, these one to two trades each day
are really what will end up giving you a good return in this market.
So let’s take a look:
You will notice immediately that TYC was under a lot of pressure right from
the get go and eventually it got into an oversold condition as noted by the
stochastics.Â
Conversely, the S&Ps were not under nearly as much pressure, but were also
indicating a potential move higher as indicated by the stochastics.
Up until this time, there were no up-ticks in
TYC. The specialist
was simply trading lower on each consecutive print (trade). However, once the
levels as seen on the charts above were achieved, I noticed the trigger, and
suddenly there were a couple of decent size prints (trades) of 10,000 plus
shares all on up-ticks. This combined with the subsequent move higher in the S&P
futures was the trigger.
I know this trade is out of character from my usual
mantra regarding trade with the trend. While that is true, the opening always
offers these “specialty” trades, which over time have just as high a probability
of playing out as do the “trend” trades. It is knowing when to use it, which for
me is openings only.
It looks as though today is shaping up to be another
decent trading day. The futures are under pressure in the early going. While it
is beginning to look as though 868 (December low) is within sight, do not expect
a straight shot down. This market continues to flop and chop. In fact, a minor
reversal off the opening would not be out of character. Stocks like
TYC, which
may open weaker than the overall market on the
heels of its’ earnings, may offer the nimble trader a quick pop. If the 868
level is breached, my short-term target is 858.2.
The SOX,
the pig of pigs, looks a bit ugly on the 120-minute chart. As it begins a new
leg lower, 275 is not out of the question.
While I do not have any definitive information on the
earthquake in Mexico City, it certainly was big in terms of the Richter Scale,
7.8. Naturally the Bolsa may be under pressure off the opening more from an
emotional standpoint. However, if it turns out that there are no serious
casualties and damage, stocks like Telefonos de
Mexico (TMX) may offer some good intraday
moves. A word of caution, however, TMX
is not nearly as liquid and thick as it used to be. During the mid-’90s, this
stock was a monster, a trader’s dream, but as with most things, traders
eventually ignore one sector for another. Today may offer a glimpse back in time
for this stock
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| *934* | 1037-41 |
| *926* | 1028 |
| 915-16 | 1015 |
| *900* | *1011* |
| 898 | 989-90 |
| 888 | 979 |
| *883* | Â |
| 880 | Â |
| 873-74 | Â |
| 868 | Â |
As always, feel free to send me your comments and
questions. See you in TradersWire.
P.S. I’m going to be on Gary Kaltbaum’s radio show
today at 5:40 p.m. ET. If any of you are interested in tuning in, you can get
the show by
clicking here.