I should have entitled this the trade of week as opposed to the trade of the day. I am exploring a new trading strategy as I have noticed that several gapper stocks that trade at extreme volume levels and close at or near the high of the day, have a continuation play the following day which is often better than the initial gap trade. A good example is CMI which closed on its high Friday and opened strong on Monday.AMZN held the afternoon low as support on the open and offered a low risk entry above the second bar high. It rallied a bit and came back in for a retest of yesterday's high as support. When support held, I added to my position as this retest was confirmation that AMZN was strong. In the last hour a short squeeze took hold - sweet!
Last night I noted a couple of high volume gapper stocks closing on their highs in addition to AMZN. I did not trade them but you can take a look at the charts of SEPR and HHH on your own.
Tonight, a quick review of high volume gappers, shows three interesting candidates for tomorrow - FFIV, SWKS, VDSI.
15 comments:
Amazing...Thats all I got
Hi Jamie,
I have been witnessing the same thing recently. I assumed it was because of the overall strength in the market. I was in FFIV right until the close, and debated holding overnight becuase of the late day strength, but decided I was changing my strategy "on the fly."
ADD Trader
ADD,
If FFIV can break resistance at $80.85, the next pivot point on the monthly timeframe is $85.00.
I'm glad to hear that you have also made this observation. I'm still working on developping the criteria but what I've noticed so far is that these stocks are trading at recent or all time highs. On the gapper day, they have volume levels at least 3-4 times average and they most often end the day on their highs or within a narrow, high afternoon range.
What is your take on AAPL? Gapped and you know>>
AAPL has support in the $97.00 - 97.70 range. If that doesn't hold, it may fill this morning's gap. The bear's were in control right from the open, but I did not sense any panic selling, just profit taking.
Hi Jamie,
I was watching WEN after it gapped up today. The next few bars basically just consolidated (with low volume)until it comes close to 5EMA on 15 min chart. 9th bar was the narrowest range, and with support from 5EMA and also the very low volume, it looks to be a good candidate for taking off. In addition, the resistance is far away from the daily chart. The 10th bar did take off with high volume, but that was all the action, as it then started reversing.
Can you take a look to see what is wrong with this trade? It seems to have everything aligned, or is it just bad luck? Thanks
YR
Jamie,
What would have been a low risk entry for CMI? Thanks
Hi YR,
First off, WEN gapped up 30% from yesterday's close. That's an enormous move. In general, if a stock gaps up more than 5-10% , it takes all day to consolidate the gap. There exceptions like AMZN yesterday, and maybe BIDU tomorrow. However, I would be cautious going foward with these wide gaps.
Secondly, a really wide gap is unlikely to reach its Fib. ext. so if you trade these, set yourself a reasonable target.
Also, normal retracement in an uptrend is about 38%. What I mean by that is if a stock rallies up and retraces up to 38% before extending the next leg up it is normal. If it retraces more than 38% it could be reversing.
In the case of WEN the ninth bar was NR7. The next bar had a wide price and volume expansion, but it failed. Bad luck, yes, but lots of red flags as mentioned above.
Anon,
I'm assuming that you are refering to CMI Monday as posted above. The first low risk entry was a break of the fourth bar high. The seventh bar was also NR and finally the three bar consolidation at the $83.21 level. Look for NRBs that are relatively close to the rising 5 MA.
Hey Jamie,
On you AMZN trade you had 1.58 of gain at the high of the 4th bar shrink to .25 at the low of the 9th bar. Just over 3R at the top and .5R at the low. Do you ignore the $ amount during the trade and just look at the chart ? Was your stop moved to break even after the 4th bar ?
Hey Greytrader,
I did not manage the AMZN trade well. I had an idea that it would retrace 38% and then continue with the next leg up. I was upset when I realized that it was going to retrace a full 62%, however, I didn't feel like getting out and then trying to find another low risk entry point so I just stuck with it and left my stop at breakeven. The dollar amount is the most important thing, but sometimes I let a pre-conceived idea get in the way of good trade management.
Nice trade Jamie!!
How can you tell the AMZN run-up at the end of the day was a short squeeze?
It's true that with the price surge, if you were short you would get squeezed. But even with no shorts, if you were panic buying to not miss out on the move up then that could also be a motivation.
Does it even matter why it happened, or why "they" were buying, or why "the other guy" sold ? Maybe I'm trying to understand it for no good reason...
Prospectus,
If my memory is good, I think you've asked me this question before.
The progressively wider bars and increasing volume in the last hour of trade are indicative of a short squeeze.
AMZN easily took out its pivot point on the monthly chart in that squeeze. If this was just regular buyer interest, it would have paused to consolidate at the pivot point. It didn't pause.
The higher the short float, the longer it takes for all the short covering to get processed and that's why it propels the stock higher at such a rapid pace.
As long as you are on the right side of the trade, short squeezes are great.
Jamie,
Your memory is good! I had asked that before, though I didn't fully grasp the answer.
I take it that usually you wouldn't see a trend continuation surge like this at the end of the day unless there was desperation? The trends seem to fade near the close as traders go flat, in my very limited experience.
Thanks for your patience to answer and re-answer my questions!
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