ISE gapped up about $20.00 from Friday's close due to a merger announcement. According to Briefing.com the agreed merger price is $67.50. The significance of that can be noted on the chart above. On a base and break pattern, ISE rallied from $65.60 (base) to a high of $67.45 which is just nickel below the announced acquisition offer. Because M&A gaps are so wide, it is generally pointless to base the target on the Fibonacci extension.These types of setups are prone to failure, so if you plan on trading these breaks, make sure you have a pre-defined stop. When the stock is about to break, the bid and ask on the market depth screen, become very thick and very tight ie. no spread. If I don't see the prerequisite market depth, I avoid these trades altogether.
Int'l Securities Exchange: Deutsche Borse AG says contemplating bid for ISE for approx. $2.8 bln cash, or $67.50 a share (45.72 ) -Update : The Supervisory Board of Deutsche Borse AG, the Supervisory Board of SWX Swiss Exchange and the ISE Board of Directors will decide on the transaction today. Further notice will be issued as soon as a decision is made.
Courtesy of Briefing.com
VLO is extended and has made a series of lower highs since topping out on Thursday. Today's break of an inverted shallow base was a low risk shorting opportunity.
6 comments:
Jamie,
With the markets at such high levels, we can expect a pullback. How would you go about screening for shorts on a down day? I'm concerned that if I use my current screening parameters for down gappers, I'm going to get way too many stocks to look at. What would you recomend in tweeking the screeners for a day where Dow opens say down 100pts? Keep up the great work.
I usually retrict my parameters in order to get a manageable list. For example normally I scan for gaps of stocks trading above $5.00 with a minimum volume of 200,000 shares per day over the last 10 days. When the gapper list is too long, I change the scan parameters to $50.00 and 500,000 shares.
However, if the market gaps down 100 points, I won't even bother running the scan because almost all stocks will gap down.
If you want to look for really weak stocks, look for stocks that gap lower than the previous day low as opposed to previous day close. But even that won't help much tomorrow because I'm noticing that many stocks closed on their lows today.
Jamie,
Congrats on the VLO trade today. Out of curiosity, what indicators, do you use, to pick the trade.
Thanks Brandon,
VLO is one of my usual suspects and I trade it often because of good liquidity. My favorite indicators for finding good stocks to trade are ADX - momentum and average daily trading range (ATR). VLO is currently tracking at an ATR of 1.6.
Hi Jamie,
What's your prerequisite market depth? Thks
Pat
Hi Pat,
ISE trades on the NYSE and normally we don't see much depth on NYSE stocks, but for this type of setup to work, I need to see at least 3 market makers coming in on each side - bid and ask and I need to see big size often over 100,000 shares on the inside bid.
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