Wednesday, February 28, 2007

Dummy Trade of the Day - Joy Global Inc. (Public, NASDAQ:JOYG)

JOYG was an earnings gap on the open. It carved out a WR red stick on the open and then consolidated sideways for an eternity. The candlestick patterns were not helpful it determining if this setup would be a gap fade or a short. However, it did carve out several sticks with highs of $45.49-$45.50. After the third such stick, I made a mental note that $45.50 was a pivot point and if it remained the high of the narrow consolidation range by the time the down sloping 5 period ema came in, I would short just below. That happened on the next bar (6th stick). I placed my stop just 5 cents above the pivot point. The trade continued to consolidate sideways and even attempted to retest the pivot point. That 5th and final test proved to be the turning point, as JOYG finally settled into an orderly decent, followed by a small bear flag before the big swing lower. Just as things were getting really interesting, I noticed a huge volume spike. This is often a warning that a reversal is approaching, so I tightened my stop to $44.00 and I was stopped out on the next bar.

This is a low grade setup because the candlesticks don't tell us much except that there is a lot of indecision. However, the combination of the pivot point and the tag of the MA, allow for a low risk entry close to resistance. This was my only trade today. The market was too choppy, so I took it easy.


JOSEPH said...

Don't beat yourself up too much. I was watching this stock all day until I remembered one of my new rules "Buy Strength, Sell Weakness"

Also, I traded JOYG poorly ystdy and it may have been a revenge trade.

It was very tough to trade.

Prospectus said...

Jamie, I traded JOYG today, too--was there anyone who didn't? Thanks for the insight about the high volume spike. Can you comment on the market action that causes this, or is it just an observed pattern? Also, I'd love to hear more about the pivot point you were describing.

Jamie said...

Hey Joseph, thanks for the encouragement.

Jamie said...

Hey Prospectus,

There were not a whole lot of good setups to choose from today and JOYG caught my eye because of the narrow trading range. I read your post and noticed that our charts are slightly different. My chart doesn't have the long upper shadow on the second 15 minute candle. I'll assume that it was a bad tick not picked up by esignal. However, it does change the perspective because my second candle fits into my pivot point analysis.

I define a pivot point as a price point that causes price to pivot and change direction when tagged. On my chart price kept pivoting at $45.50 (bars 2,3,5 and 6)so I assumed that was a ceiling on price as we traded in the narrow trading range. In my experience, pivot points are very strong support/resistance levels. However, when price breaks through a pivot point, there's usually a big momo move. That's why I shorted just under the pivot point to limit the risk.

The volume spikes are particularly useful for monitoring reversals in the middle of the trading day, exclusive of the open and the close. I learned this daytrading tactic from reading "Techniques of Tape Reading" by Vadym Graifer ( first book in my short list of essential reading on the blog side panel). The cause of the volume spike is similar to euphoria (tops) or capitulation (bottioms) on a smaller scale. It has been a big help in my trading.

Hope this is helpful.

Michelle B said...

Hi Jamie. Very helpful analysis on how to have squeezed a trade out of rocklike JOYG, especially your focus on its pivot point and the high volume spike. Kudos.

I passed on it because of my knowledge of how brittle it can trade, and that it was at the daily 200 sma support, and also pretty darn close to the bottom bollinger band on that timeframe.

Jamie said...

Thanks Michelle,

I noticed the 200 on the daily as well. I don't often use bollinger bands, but I will look at those next time when I'm not sure about a setup.