Tradable Patterns After Major News
On March 13, 2001, Tyco International Ltd (TYC)
announced that it clinched a deal to purchase CIT Group Inc (CIT)
for $9.2 billion, or $35.02 a share. After this news, many traders dropped CIT
Group from their trading lists because buyout stocks usually trade without
direction
after the announcement. But as you can see on its daily chart, CIT group was not
quite finished yet. On April 4, the stock hit the intraday low of 26.36, nearly
9 points below the acquisition price. It quickly reversed to the upside and
began to rally.
How could you explain this rally? The issue was probably undervalued at 26.36,
but if you were a believer of Fibonacchi retracement levels, you knew the stock
would come down to this price level. The intraday low price of 26.36 was the 50%
retracement level of the February 22 low to the March 13 high.Â
Tosco (TOS)
is another example of a buyout stock. Back in February, the company agreed to be
acquired by Phillips Petroleum (P)
at $46.50 a share. If you dropped Tosco from your trading list after the news,
you missed several opportunities. It gave you a chance to buy when it bounced
off its support level. There were also at least two pullback plays as you can
see on its daily chart.
Remember, there are always opportunities after major news.
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See you Wednesday,
Gary
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