Saturday, May 26, 2007

Dummy Trade of the Day - Verigy Ltd. (Public, NASDAQ:VRGY)

VRGY gapped up on strong volume. Initially it retraced below the daily pivot high, but quickly recaptured and closed above it. The second bar was gravestone doji type bar which did not inspire confidence. As the chart developed, I decided to use the 30 minute ORH as my base because it was a lot cleaner and made the chart easier to read. By mid to late morning, the stock had worked off the initial negativity and began to consolidate in a NR on declining volume. As price and the rising 5 period EMA collided, VRGY carved out a NR7 bar, following which price expanded and my buy stop order was hit.

The reason I decided to stick with VRGY despite the gravestone doji, was that there was no resistance. Once the ORH was taken out, price ascended into virgin, blue sky territory.

My Dummy Trading Rules for Base Breakout Gappers:
  1. Very high relative volume;
  2. Maximum Fibonacci retracement of ORH to previous day low = 38%;
  3. Minimum risk:reward ratio for target 38% Fibonacci extension = 1:3;
  4. Proximity between price and 5 period ema at base breakout point;
  5. Length of consolidation vs. size of gap, ie. the wider the gap, the longer the relative consolidation period;
  6. Volume contraction prior to breakout.

8 comments:

jason said...

Didn't take long to get axed from your blogroll. Not that I blame you; just a kick in the face of sorts. Best of luck to you.

Clive J said...

Hi Jamie,

Love the VRGY analysis. I also traded it, but my reasoning for entry (on the 15min chart) was the successful retest of the ORH with that text-book hammer. I was concerned until the horrid 2nd bar was taken out. What significance do you attach to the Daily Pivot High?

Sad person that I am this bank holiday weekend, I have been doing some homework. I quite like the look of AMLN's possible pole & flag. I've put it on my list anyway for next week.

Have a great weekend,

Clive J

Jamie said...

Hey Clive,

The significance of the daily pivot high was an area of support. On the 5 minute timeframe, VRGY tested the daily pivot high in the very early going and bounced from there. I always feel better when former resistance is tested before the stock takes off. Better to test it in the early going rather than later.

AMLN has a similar pivot point in play. Tuesday's high is a signifcant pivot point dating back to Oct. 27th as resistance and July 24th, 2006 as support. Once that pivot point is taken out, it should propel the stock into a momo move to the upside.

Thanks for pointing that one out, I will add AMLN to my watch list as well.

In addition to VRGY, I traded CMG as a base and break similar to your ESRX trade earlier this week. I was too lazy to run a scan Thursday night, but CMG was one of the few stocks on my focus list that did not get hit hard on Thursday.

Enjoy the rest of the weekend!

Jim C. said...

So, what is the deal with Esto's blog? I know he recently moved out west. Is he still trading? It says "open to invited readers only". Is that the case or just a standard message for blogs that have been shutdown.

Jamie said...

Jim,

Not sure really. Friday, he posted that the blog was coming to an end. My understanding was that he would leave the blog open until Christmas.

I suspect it is now a private blog, by invitation only. I tried to access it on Saturday morning and I have been denied access.

QQQBall said...

nice trade!

Jim C. said...

Scanning for narrow range setups over a holiday weekend (after a low volume Friday) usually finds some candidates. WINN looks like a winner. Others that showed up are: VCLK, YHOO, ENDP, AMLN.

Jamie said...

Hey Jim,

VCLK and WINN also showed up on my scans. AMLN was also mentioned by Clive.

AL did well on the TSE today +$2.60