All Entries Tagged With: "Momentum"
Post-Earnings Day Trading Profits
October 20, 2011 at 6:43 pm
Earnings season brings with it a host of opportunities. It includes the potential for new leadership to emerge once it’s all said and done, but in the heat of it, the price action offers some excellent chances to participate in emotional short-term moves via day trades.
Traders expect big gaps during earnings season, and quite a few roll the dice ahead of it in hopes of receiving a market gift. Fortunately though, a trader need not participate in the gap itself to do well.
The post-earnings gap is a regular occurrence for most stocks, although some make a larger move than others. The outlier moves are the ones to watch closest, as they can signal either the beginning of a new move, or an overreaction with reversal potential.
Thursday’s move in PLCM was an example of the latter, as a 30% opening gap to the downside proved to be a bit much. The stock made a huge run higher intraday, although as I’ll show in the video, catching the entire run wasn’t necessary. Instead, grabbing pieces here and there can prove quite lucrative when there’s heavy volume and high emotion present.
In this video, I’ll share with you how I profited in the stock despite feeling like I missed both the big moves (the gap and most of the upside reversal). The fact is, when a stock is in play like PLCM was, there’s opportunity for several kinds of plays along the way. And the exciting part is that this happens nearly every day during earnings season, 4 times per year.
Be sure to watch full-screen on the 720p setting for the HD version of the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
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Strong Coffee
July 11, 2011 at 9:39 am
Truth be told, a Slurpee is the beverage that’s actually on my mind (happy birthday 7-Eleven), but if you’re looking at the charts of anything drinkable right now, it’s all about coffee.
Granted, it doesn’t quite have the same ring to it as the 1999 Bubble or the Crash of 1929 (or ’87), but the Great Coffee Rally of 2011 is on.
Names like CBOU, JVA, PEET, GMCR and SBUX have been ramping in recent weeks, putting them squarely on the radar of momentum players far and wide. This isn’t your typical grind (no pun intended) higher. These things are hotter than a car hood in the Texas summer.
Like quite a few other stocks, most of these could certainly stand to put in some rest here in the short term, but once that’s done, these are among the strongest (no pun intended) stocks in the market. Let’s take a closer look at each one.
CBOU – Nice pick up in not only activity, but of course in price as well since the higher low was established in early-June. Next levels are $14.30 then $14.50 to set this one free for higher prices.
JVA – The July run alone has been more like a quintuple shot of espresso than your average cup of coffee. We’ve also seen a 323% gain since June 6th – how’s that for a wake-up? Incredible short squeeze action here and way too extended at the moment to consider an entry, but certainly deserves a spot on the watch list for one of these days when it has settled down and created a new pattern.
PEET – More of a steady grinder, this one has actually built a couple of bases along the way up. It’s not in a place where I’d be getting long, but once it puts in some rest, it’s certainly one to revisit. Lighter volume than the others.
GMCR – At $95 per share, it’s a little rich (no pun intended) for some, but the uptrend is steady and this one continues to run. This year alone, we’ve seen 3 breakaway gaps which never saw attempts to get filled, serving as reminders that this one is very strong.
SBUX – The grandfather of them all might be kinda old, but he’s still got it! SBUX left a multi-month channel with a solid push higher a few weeks ago, tacking on nearly 15% over the past month. Currently it’s trying to put in a little rest, which is healthy to see. Once that’s done, don’t be surprised if another leg higher begins.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Obscurity and Opportunity
June 28, 2011 at 8:57 am
Prolonged market rallies have a way of pulling obscure stocks off the sidelines and getting them involved in the action. It’s the effect of “a rising tide lifts all boats.”
And that’s entirely fine. It’s nice when new names are added to the mix of active stocks.
The market turned higher in March 2009, and since then we’ve seen considerable progress. Tons of little names have entered the fray, paying astute traders along the way (unintentional rhyme).
While I do have some restrictions on what I will and will not trade, I don’t mind trading some of the more obscure names when they’re set up for moves – so long as they exhibit the proper traits:
Size Matters
Dirt-cheap, thin stocks are not worth trading. They carry much greater potential for pain than profit, despite their inexpensive price tags. But growing stocks (price & volume growth, not necessarily earnings growth) are another story. Every big run starts somewhere, right?
There’s often a relationship between ‘unknown’ and ‘underowned’ and that can spell exceptional opportunity. Under-the-radar stocks often times begin to exhibit technical characteristics worth noting, raising interest in them in such a way that they’re the up-and-coming stocks. Naturally, they’re little-known, and that means they’re underowned by institutions (the ones who really move stocks). As they exhibit some staying power, interest in them grows. That brings both price and volume up to tradeable levels, placing them squarely on the watch lists of traders like you and me.
(I’m talking to mostly guys here, so ladies please bear with me on this next analogy. I want these guys to “get it” so they know what I’m talking about.)
Think of that co-ed in college who returned from summer looking far better than the previous semester. What happened? Suddenly she has the attention of many more guys, has more dates, and as competition for her time expands, so does her confidence. Now that she’s being noticed, she’s unlikely to regain the 15 she lost and return to the sweats-with-no-makeup look again. (Nothing against the natural, casual look… just stating that a change is likely to last in this case). She’ll quite likely take care of herself better, and interest in her will be maintained as a result.
Stocks sometimes follow a similar path.
Beware the Flash in the Pan
As the phrase states, “one day does not a trend make.“Â Therefore, it makes sense to make a stock prove itself – at least for a little while – before taking a position.
The single-day spurt higher on news will bring no-name stocks into view on a regular basis, but most of those are just having their 15 minutes of fame. If what you’re seeing is just a knee-jerk response to a headline, there’s limited opportunity and that stock is likely to drift right back into obscurity. Avoid those.
Instead, as a stock begins to earn respect (and attention), watch for the key characteristics that it’s starting to trend: expanding volume, higher highs and higher lows, and a good price/volume relationship. These stocks are much more likely to stick around and offer you multiple opportunities to participate and profit.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Lighten and Tighten
June 6, 2011 at 11:38 am
An absolute commitment is required for some things in life, like let’s say, a social function. Either you’re going or you aren’t, right? However, other things might require a lower level of commitment. Your diet, for example, might currently be more of an “I’m trying not to eat too many sweets” approach right now. That’s what I’d call a partial commitment, where it’s not an all-or-nothing approach.
When it comes to trading though, far too many traders think they have to be “all in” or “all out” of their positions. Nonsense! Think outside the box a little.
On the surface, we know that commissions are so cheap these days that there is no problem with splitting up positions by making partial exits when a situation calls for it, so that shouldn’t hold you back from adopting this mindset.
There are some occasions when it’s very useful for me to either lighten my position size, tighten my stop, or both. Let’s look at some examples of each, and I hope you’ll add your own thoughts to these in the comments below.
Lighten!
* I should clarify that I’m talking here about lightening up on a position mid-trade. This is not to be confused with when to trade smaller.
Lightening up on a position is a way to Defend both my capital and my profits. Whenever I get a poor fill on a trade where my order is executed at a price which is considerably different than my trading plan accounted for, it’s time to lighten up. By definition, the risk/reward profile of the trade has changed (since the entry price has changed and my stop is now farther away), so naturally I need to make an adjustment. This is the scale I use to do that on my swing trades. Doing this keeps my risk in check with what it should be, allowing me to stick with the trade – even if it’s now a smaller amount.
Tighten!
I won’t enter a trade unless I know my get-out (stop loss), but that doesn’t mean my stop never changes. Sometimes the situation changes in such a way that an adjustment is warranted.
Market conditions may necessitate such an alteration to my plan. Suppose I’m long as a limo, and suddenly the complexion of the market shifts to something quite negative. Maybe news breaks or we see a key reversal set in – well, I’m in denial if I think the landscape hasn’t changed. In those cases, it makes sense to tighten my stops on long positions as a way to shore up my risk.
On a per-trade basis though, sometimes the way a stock moves just happens to change, and that can also warrant tightening my stop. Maybe a stock initially breaks out with momentum, but rather than showing follow through or putting in healthy rest, it simply begins to stagnate. Volume disappears, a sloppy trading range sets in, and I start to see a lack of conviction with weak closes in the stock for several straight days. That’s a time when I’ll definitely tighten up my stop, whether in time or price, as the stock simply isn’t behaving in such a way to deserve a long leash.
Both!
My favorite occasions are those which allow me to both lighten my position and tighten my stop. That usually occurs when my first profit target is hit. That’s a spot where the trade has moved enough to warrant booking some gains (lighten), but the stock may not be done running yet. Typically, I’ll have 2 targets, so sometimes there’s still room for additional gains.
At this point, my initial stop is also now a considerable distance away, so it makes sense to tighten it as well (often to breakeven for remaining shares). This way, I’m risking less on what’s left of my position, while still allowing for additional profits if the stock continues to run. Win/win.
** What are some keys you use mid-trade for knowing when to lighten up on your size or tighten your stop? I have a Bandit t-shirt for the best response, so bring the ideas!
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Trade Review: BIDU Breakdown
May 18, 2011 at 11:56 am
One setup I recently had success with was found in BIDU. Although the money’s been made on this trade, there are still some lessons we can take away, so let’s take a closer look at the trade as it evolved and see what we can learn from it.
The entire Chinese internet stock group had been weakening of late, with names like SOHU, SINA, NTES, and others beginning to struggle. This followed months of leadership, as these stocks made big upside runs by building bases upon bases. The momentum shifted a few weeks ago, and in every case these stocks topped prior to the market’s pullback. (That’s why they call them leaders).
BIDU did the same thing, having peaked in late-April ahead of the major averages like the NASDAQ. Once the overall market began to pull in, these stocks accelerated to the downside, providing further evidence of an important change of character. Having become oversold, they rebounded, but in a lazy fashion. This set up quite a few bearish patterns, with the rising wedge being found in BIDU. I highlighted this pattern for premium readers on the main site, looking to short BIDU upon a break of the lower trend line at $139.50.
BIDU broke that rising trend line, a day after its counterparts NTES & SINA. That offered not only a clean entry for a short sale, but also a stock which had potential to play catch-up on the downside.
I set a pair of targets for booking profits at $132 (yellow line in chart below) and $127.50 (red line on chart below), respectively. Target 1 was reached on day 3 of the breakdown, which was just slightly ahead of the 2/14 high in case it were to be tested. Target 2 was reached on day 4, and that level corresponded with the lower end of the same mid-February congestion zone.
While this stock eventually overshot my $12 per share profit target, it became oversold. Anytime a stock moves too far, too fast, it’s time to watch for a snapback. BIDU has done that in the past 2 sessions, but remains technically damaged. Here’s a current look:
This stock and the others in the group are currently bouncing from their lows, but they remain in a bearish series of lower relative highs on their daily charts. That is to say this bounce may get sold into again, so although this short sale is long since over, we have no evidence yet to support a lasting trend change. Until we do, these are stocks to watch for new short-sided entries to emerge.
A few takeaways:
First, clean patterns are the place to focus. They make it simpler for me to recognize when to be IN a trade, and perhaps most importantly, when to be OUT of the trade. Tighter, more well-defined patterns help me be decisive, and in this game, that’s huge.
Second, stay on top of the sectors. While it’s a bit harder these days to play follow-the-leader when it comes to sector moves, it can still be done with success. Take note of which groups are shaping up for advances or declines, and work the charts for favorable candidates.
Third, when you get your move, ring the register. Greed could have kept me in this trade for a little bigger move, but it also could have kept me in too long, leaving me now to wonder what to do on the current bounce. Blend the info you get by looking left on the chart along with the pattern projection to come up with an exit strategy. Then stick to it!
Fourth, (and this goes hand-in-hand with the previous note), sharper moves are more prone to reversal. When your targets are in sight (or already hit) and the move is getting a bit stretched, expect the rubber band to snap back at least part way. Tighten your stops, book gains, and generally start expecting an imminent exit. Pigs truly do get slaughtered.
Here’s to your next trade, whether a winner or loser, and your commitment to take from it what you can – whether it be profits, a lesson, or both.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Dealing with the Pop and Drop Trade
May 17, 2011 at 1:43 pm
This question came in from a fellow Bandit recently, and I wanted to share it (and my response back to him) with you here…
Question:
Jeff, what’s the lesson to be learned from this today. One trade I was watching (***) moved past 13.45 in a hurry this morning. By the time a trade could be executed it was already up in the 13.60s, got up as high as 13.74 and then dropped like a rock back down to where it started the day. All of it happened in about an hour. I’m thinking it would have been better to leave this one alone today. Thoughts? B
Answer:
That one did shoot quickly past the trend line, and anytime that’s the case I try to lighten up into the move. The sharper the moves tend to be, the more prone to reversal they are. So while it’s nice to see a big fast favorable move, at the same time it’s imperative to recognize that it may not last long and to use that strength to book some profits.
Another thing I’d add is that anytime you happen to get a bad fill on your order (in this case 13.60 as you mentioned when you wanted 13.45, it’s important to recognize that the risk/reward profile of the trade has just changed. You might have intended to exit around 13.30, or just about 1% from your entry, but a higher-than-intended entry necessitates raising your stop aggressively in order to offset the late buy. Otherwise, your stop is simply too far down and the risk/reward is no longer as favorable as your original plan for the trade.
The idea is to keep managing risk, keep managing risk, keep managing risk when day trading. Sometimes you get ‘slipped’ on an order like that and end up with a later-than-intended entry, so when you do, either keep a tight stop beneath it or trail it behind the trade aggressively so as to either exit with a minimal loss or book a little gain. If the trade doesn’t unfold as planned, look for the next-best alternative, which is getting out about flat or slightly better if possible.
Sometimes as you said, hindsight will show stocks which may have been better left alone, but on the fly we can still manage the situation well with some good habits.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
What Are the Leaders Doing?
April 13, 2011 at 11:15 am
The market has been resting for a couple of weeks now – and who could blame it? After a run of more than 7% off the March low, some kind of digestion was in order.
Initially, we just saw indecision as the indexes flip-flopped around key levels (NAZ 2802, S&P 500 1332, DJIA 12400, etc.). Since then, however, they have weakened a bit. That isn’t bad, and the pullback could quite easily result in a higher low on the daily charts (vs. the March lows which are well beneath current levels).
While the broad market grapples with where to go next, perhaps a more pressing issue is what are the leading stocks doing? Let’s take a closer look and see how they’ve fared of late, as well as some key levels to keep an eye on in the days ahead.
The best thing to do right now is allow the market digestion to continue and allow the chart patterns you’re watching to fully mature. Forcing entries out of boredom isn’t the secret, so maintain your discipline and let the market generate signals before you take action. If you choose to play at the wrong times, it’ll cost you. Once somebody else starts the move, then you can hop on board for a ride.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
