Watching The Tape
Like most things in life, once in a while
you get a curve ball thrown at you. My trade that I spoke of in yesterday’s
column of Texas Instruments
(
TXN |
Quote |
Chart |
News |
PowerRating)
was a case in point. Normally, these trades where the stock gaps up or down are
typically good for a nice fade. That was not the case yesterday. While it is
easy in hindsight to identify the “reasons” the trade did not work, I
can honestly conclude that no outrageous mistakes were made. The trade simply
did not play out.
Let’s take a look at the trade and the setup:
So what was the subtle clue that the chart could never have alerted you to?
Watching the tape. I was filled on my short at $33.55, the market at that time
was 33.55 x 33.60Â
The market at the time was 5,000 shares on the bid and 2800 shares on the
offer. Other than keeping my eye on the futures, I was intently watching each
trade that hit the tape (time & sales). It did not take long for me to
notice that regardless of how many shares “hit” the bid at 33.55, it
never went away. There was obviously a good size buyer. However, that in and of
itself is not reason enough to cover.
With the futures still coming off a bit, there was still hope, especially if
the 33.55 went away, that would cause an air pocket to the downside. Instead we
got an air pocket to the upside. My uncle point was when they started to take
the offer. I immediately sent in a market order to cover. I was filled on half
my order at $33.60, the other half at $34. There were no other trades at any
price in between. Not the way I wanted to start my day. However, for every one
of these “fade” trades that don’t work out, I have seven or eight
others which did, which adequately exceed the loss incurred on this trade.
Some of you may be saying: “With that big price gap, why trade NYSE? You
would have been filled at a better price if TXN
were a Nasdaq stock, since there would have been offers all the way that you
could have taken.” That may or may not be true. It is certainly possible
that you never would have got those prints. But that is not my point. More times
than not, when you are on the right side of this type of trade, my loss in this
trade is the converse, a very nice gain. The advantage, in my view, of NYSE
stocks is that they more accurately reflect emotional extremes, and since the
order flow is dictated by one individual, the specialist, you often see these
price gaps. Being on the right side of these trades is a big edge.
Looking at today’s session, the market is once again in “bullish”
mode. The big move yesterday has once again switched the tide of emotions.
Unfortunately, it was not enough to break us out of the trading range. The wait
continues. At 10:00 AM EST we have testimony by Alan Greenspan regarding the
economy and monetary policy. The headlines released at 10:00 AM may offer a
quick volatility spike, so be prepared for some setups.
Tomorrow’s piece will address an e-mail I received from a reader asking how
to identify what I call “quality” setups on a one-minute chart of IBM
from Monday’s session.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| 1146 (massive confluence) | 1453-55 |
| 1138 | 1435-38 |
| 1133 | 1429.50 |
| 1121Â | 1400 |
| 1116 | 1386 |
| 1107 | 1363 |
| 1098 | 1326 |
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.