As discussed last night,
LEND was front and center for me this morning following yesterday's late day surge on high volume. It was very active in the pre-market and gapped up on the open.
The first bar closed weak as expected because a lot of traders who picked up the stock late in the session yesterday, sold the open. The second bar was bullish and the third bar was a neutral inside bar. The fact that the third stick closed in the upper third of the previous bullish bar and printed much less volume, was a plus. An entry above the base formed by the second and third bar highs was contemplated, however, I decided to stick to the rules and wait for the OR high to be taken out. The fourth bar edged above the OR high and closed very strong. At this point, I thought the stock was going to run away from me, but luckily it retested the breakout point, allowing for a second chance to get long. I waited for the rising 5 period EMA to edge up even closer and entered at the beginning of the 6th bar.
Based on the heavy pre-market trade, my ultimate target was a gap fill, however, knowing that was extremely ambitious, my strategy was to stay in the trade until the target was met as long as price did not breach the 5 period EMA on a closing basis. Within that strategy I leave myself open to exit, if things get disorderly or suspect. After tagging the 38% Fibonacci extension, things got a little suspect as a series of "out of the money" transactions started printing on the time and sales screen. This action lasted 10 minutes and was extremely disruptive to the chart pattern especially on the lower timeframes. However, it did not affect the level II screens so I hung in. If we remove the long tail on the 8th bar which was caused by the out of the money trades going through, we have a very orderly chart. Volume was momo and much stronger on the green sticks than the red ones. The gap fill and tag of the 100% Fibonacci extension occurred on extremely high volume, almost a euphoric volume spike, marking the end of the move. There were a lot of shorts being covered in this move today because of yesterday's strong close and the absence of more bad news on the sub-prime lending group.
A student reader bought LEND in the upper range on today's action and asks what to do now that the stock closed lower than the purchase price. I can't give investment advice, however, I can read the chart for you. Based on today's close, we have an unconfirmed bullish island reversal. In order for this bullish reversal to confirm, we need to keep today's opening gap, at least partially unfilled.
LEND has been on a path of lower highs and lower lows for quite some time. We need a trend change which means higher lows and eventually higher highs. I know that the stock is trading lower in after hours, however, today's bullish volume spike could signal a reversal is at hand. One thing is for sure, expect more volatility.
Here is an interesting comment courtesy of Briefing.com:
Floor Talk: More on short-covering in the subprimes : As we've mentioned a number of times in the past couple of days, the short-covering in the subprime lenders continues at an aggressive pace. The notable movers today include NEWC.PK, LEND, NFI, FMT, DFC, CCRT, FED, CFC, IMH, and NDE, although basically the whole group is moving higher. Essentially, when everyone is leaning on the same names -- and they stop going down -- everyone starts to cover at the same time, which in this case has led to a truly impressive short squeeze... In addition, a couple of other factors have given further incentive for shorts to cover: 1) the morning bombshell headlines from the group have (at least temporarily) stopped appearing each morning, so the morning headline risk has subsided somewhat; and 2) there has been chatter that some of the big brokers (BSC, GS, etc) could start shopping for assets among the subprime wreckage; the WSJ ran a story on GS to that effect on Wed, and BSC and LEH suggested during their conference calls that they might start looking for opportunities in the subprime area... One final observation is that the markets have been hammering the subprimes for weeks now (i.e. pricing in the bad news), yet the US Congress seems to have just noticed it this week when various members threatened to hold hearings/sponsor legislation on subprime lending practices. In other words, the sound and fury that is starting to emanate from Congress is occurring after some major damage has already been done (in the past, Congress has at times served as a contrarian indicator in situations like this... for example, think of the oil profiteering hearings that occurred right around the time that crude oil peaked)... In short, it's impossible to tell how far the short-covering of the past two days will take the subprime stocks, but the one thing traders can count on in the coming days & weeks is extreme volatility.
NTRI was a planned trade based on a base and break pattern on the daily chart above. It did not gap up on the open but I used the Fibonacci extension to determine the best entry and exit points. Long on a break of the OR high with a partial as price tagged the 50% extension. I was stopped out on the balance during the late morning market swoon. I re-entered when price recaptured the 5 period EMA with a target of 100%. We didn't quite make that second target so I tightened my stop to $53.00.
A similar base and break pattern is setting up on TSAI for Monday so add this to your watch list. 
My other dummy trade was DNDN as it reversed on its pivot point after the midday swoon. I picked it up at $13.00 and sold as price approached the 38% retracement. Notice the volume spike as price dipped into the pivot point, signaling the end of the move.
A reader submitted this trade of CCJ which I like as well. Trader-X refers to this setup as a beyond the Fibonacci extension. Price consolidates in a bullish fashion just under the 38% extension and when the rising 5 period EMA comes into play, price extends beyond the 38% level to the 75% level. Plot the Fibonacci lines in the usual fashion and exit when the target is met, or price stalls. I notice you are using the 10 minute timeframe so in your case the OR high is the high of the first 10 minute candle. The extension lines don't line up as well on the 10 as the 15. For example you extend from the 50% level but your exit doesn't tag a specific line, it just falls between the 75% and 100% levels. I guess you could add another line between 75 and 100 to make it fit.
