NR7 - Market Test Your Scan with OddsMaker

We've been in a mean reverting market for almost a year and long breakouts are few and far between. Long setups that worked well in 2009 and 2010 had little chance of success last year. If that sounds familiar, you need to refine your trade setups to the reality of the current market environment.

One of my favorite setups is the 15 minute NR7 which reflects price/volume contraction ahead of expansion. I like to trade NR7 with stocks showing intraday momentum. NR7 is a great trading strategy to deploy during earnings season. Earnings gaps offer good trading opportunities but we don't want to chase. Wait for NR7 and catch the next leg with low risk.

Using Trade-Ideas Pro Scanner 3.1 in conjunction with OddsMaker, I am able to market test under current conditions and refine my NR7 scan to generate a winning strategy.

As depicted below, my scan generates a 27.7% win ratio. That may not sound like a lot, but since I use a tight stop, losses are small and winners generate good income over a short period of time. The OddsMaker quickly market tests my NR7 scan and provides summary and detailed results of the strategy over the selected number of days of back testing. In this sample, I used 500 share size for all trades and after 15 days it generated $4,000.00. Even if we reduce the maximum number of trades possible on any given day, the results are still impressive, given that my testing assumes that all trades are closed after a $1.00 profit is attained.



My NR7 scan starts with a preview of stocks gapping up in pre-market and then alerts me of NR7 stocks that meet the criteria in real time as depicted below. If you want the exact configuration of this scan click here.

A couple of sample NR7 trades are CROX on Jan. 11 and SINA on Jan. 12.




Identify a trading strategy that works well under current market conditions and then let OddsMaker back test and crunch the numbers. All you have to do is refine the scan and trading rules to enhance the results and make the strategy manageable.

For more info check out the Trade-Ideas blog.

Technical Picture - U.S. Markets Rebound from Japan Meltdown

The U.S. markets gapped aggressively lower on the Japanese meltdown overnight following nuclear power plant fires. Buyers stepped in as the S&P came close to 1260 support, a key level I noted in my last post. This level corresponds to the 2010 highs, an area we based at for the last seven sessions of 2010. Volatility spiked as depicted below.

Swing Trades

Buying support on the open isn't easy, so I decided to to take some of the nail biting out of my support strategy by trading from my swing account rather than my day-trading account.

HCPG gave us POT $51.00 and I also liked POT $50.00, so I wanted to buy somewhere in between.

In the end, I hesitated and decided to go long weekly S1 which is much closer to $51.00. I took a partial midday.

I was looking to hold my partial swings overnight if we made a higher high than yesterday on decent volume, otherwise we're just on a path of lower lows and there's no point in taking the extra risk of a swing. So POT took out yesterday's high intraday, and we'll see what happens tomorrow.

I'm three for three with SU, but still not holding overnight because we keep printing lower highs and/or lack of volume.

TCK breached my initial, narrow support target on the open, so I decided to put this name aside and wait to see how things develop.

I took TCK long on a NRB, low risk, entry as depicted below. I took a partial at resistance, but it just kept on going on accelerating volume, which was perfect for my swing strategy.

Dummy Day Trades

For daytrades, I've been trading the old standby - low risk, dummy trades over the last two days. I look for stocks that gap with volume. Not too hard to find these days.

SHAW is a contractor with several nuclear power plant contracts set to begin in the U.S. and China. Following news of the Japanese nuclear disaster is gapped down wide on Monday. Two really nice trades yesterday and one today as depicted below.

I take all the high volume pre-market gappers and first hour pt. gainers/losers that catch my attention and create a symbol list in my Trade-Ideas scanner which I run the 15 min. NR7 scan. NR7 signifies price/volume contraction (narrowest price bar over last 7 bars) and foreshadows expansion. For longs I want price, to close above 5 EMA (pink line) and for shorts, below 5 EMA.

MCP printed a few NR7s and carved out a NRIB (narrow range inside bar). Took it long on break of small handle or base. My target was a retest of the intraday high. Not very fond of MCP as it can get really erratic at times, so just take the money and run.

Also traded PEP ( not pictured) NR7 plus hammer, but it went nowhere for a scratch.

Day Trades - TCK, CLF, TBL

Bear flags have been hit and miss in this market. Mostly they've been fake outs. So why was TCK a good short? From the daily chart above, we noted a huge volume spike on the Feb. 9th drubbing. So we see a huge red stick with volume, plus bear flag with NRIB observing the downsloping 5 ema as resistance closing at the base of support. This bear flag felt like it could work.

Small size on break of $58.00 and added at the first consolidation BO. Took a partial after 3 consecutive WRBs on 15 min. timeframe (not depicted). Got stopped on balance as price capitulated into $56.00 and bounced.

CLF gapped up on earnings. Price chopped around in the first hour and then started basing in an increasingly narrow range, forming a flat base at $99.50, and setting up a gap fade.

Price breaks down, retests the base and runs lower for 3 consecutive 15 minute bars. Take a partial as price approaches $98.00. CLF snapped back sharply. I thought the second half was going to get stopped out at BE, but, it came back down and I was able to salvage a decent profit on the second half.

Looking back at the 15 minute chart, there just wasn't enough volume expansion on the initial leg lower to expect continuation.

TBL was another earnings gap from the Trade-Ideas scanner - gap up min. $1.00, RSI on 15 minute timeframe minimum 60.

TBL gapped and ripped then spent most of the rest of the session in a tight narrow range. Normally, I like to buy the BO of the upper range, but time was of the essence, so I decided to buy the bounce off of the bottom of the range, then if the BO failed, I would have some profit from the trade. Turned out to be a good strategy as price/volume expanded into the close. The base BO also set up perfectly with a low risk NRB on the 15 min. timeframe.

Entry and exits depicted on 1 minute chart below.

Technical Picture - Broad Based Accumulation

The markets gapped up in the wake of the post QE2 push. Gold and commodities were the leaders on a much weaker dollar, but overall the rally was broad based with few laggards (biotechs and education). In the final hour, financials broke out of a multi-month base.

However, as we can see from the chart of the S&P, we've breached the top of the Bollinger Bands and will consolidate/correct soon. Momentum is strong and the jobs data would have to be really bad in order to spoil the week IMO.

DW mentioned VMC in the comments a couple of days ago as a short squeeze play. Today, VMC gapped up, consolidated and extended a full measured move of the previous day's range. Good call!

Using the Trade-Ideas scanner - pre-defined scan entitled "Down 50 cents in last 5 min. on big volume", I found two perfect RSI divergence candidates. MUR ripped lower, bounced and then made a slightly lower low with positive divergence of the RSI, setting up a retracement long.

DLR had daily support at $55.00, so it was just a matter of waiting for price to hit the number. As depicted below, the positive RSI divergence, signals a buy at that level.

Technical Picture - Minor Losses

Minor corrective action on weaker than expected economic data and confusion over foreclosure processes, as depicted on the intraday SPY and QQQQ charts above and below. The SPY retraced 62% of the last leg up and the Q's retraced 38% before bouncing into the close.

After hours, GOOG's big earnings beat ( +$0.96 above consensus) have NQ Emini futures trading slightly above daily resistance. GOOG is up close to $50.00 from its daily closing price.

Tomorrow is OPEX so expect more volatility for option-able stocks. Also, keep an eye on the economic calendar.

Today's Day- Trades:

FSLR was testing its trendline after retracing 50% of the last leg up. It had carved out two NRBs ready to expand. The pre-market price action setup a tradable entry point at $140.00. The targets based on the daily were 20 MA and resistance at the blue line. The trade was executed as depicted below.

CREE had relative strength yesterday in the wake of disappointing earnings by INTC, so it was worth a second look. As you can see from the daily chart below, it was a good candidate for a target trade to the base of resistance at $57.00. I'd like to see it consolidate at this level before breaking out. The next target is a move into bearish gap resistance.

Price penetrated the PDH on the OR and consolidated setting up an easy long.

STI was from the Trade-Ideas scanner and setup a bear flag short on banking sector weakness.

Going forward, I like the following charts:

ALTR has held support of BO point and is testing the trendline. Long above blue line.

WYNN is holding support of $100.00 as it flags. Could be a big move.

AMZN has been basing $157.00 for several sessions and will likely move higher in the aftermath of GOOG's big earnings beat. Hopefully it won't gap too much.

P.S. To Trader-X fans, he's back!

Day Trades - Trade-Ideas Scanner

Two trades using the Trade-Ideas Scanner - ETN and ECL. CAT, an HCPG pick from last week also printed but I missed the entry.

Settings:

• Min. price $20.00;
• Min. daily volume 750,000
• Min. up days 1
• Min. volatility $0.05
• Min. up from the close $0.50

Look for stocks with multiple prints on the scanner. Wait for consolidation. Make sure they meet user defined setup requirements.

Also traded CMI on Friday and FAS on Thursday.

Handle - Cephalon, Inc. (Public, NASDAQ:CEPH)

CEPH gapped up, printed a wide, bullish OR, followed by a handle in the upper range. The handle leads to price expansion and a full measured move as measured using the Fibonacci tool from the ORL to the ORH.

REGN was found through the Trade-Ideas scanner using the momentum scan. Again, a small, tight handle with NR7, leads to a full measured move of the last leg up.

Happy Canada Day

What does this post have to do with Canada Day? Nothing, but I just wanted wish our Canadian readers a happy July 1st. Cheers! Oh, and three of the four trades below are Canadian ADRs.

If oil breaks down, DUG will break the channel to the upside.

I've been watching and trading CNQ. Yesterday it broke it's short-term trendline. Today it gapped above it, but turned into a quick fade despite a weaker dollar. Inventory build means less demand, so oil is poised to correct.

On the DUG chart, the same trade would be the reversal at the lower channel line.

The 5 minute chart of CNQ shows how it set up a perfect ambush trade. A decisive move lower after failing to hold on the trendline, followed by a quick retracement. Within the R-zone, it forms a base at the 50% level, breaks higher and stalls at 62%.

POT is another Ambush example. I didn't trade the ambush, but rather the h pattern, which took a long time to get going, but eventually delivered.


RIMM - I'm calling this the Groundhog Day setup. If you've seen the movie, you will get it, but if you haven't, I'm taking the exact same trade as yesterday, at the same price. Worked like a charm today.
PFCB was a stock I found on the TI scanner. The scan is called Stocks with the MOST Upside Momentum. I've modified the scan to meet my particular needs. On a day like today I get a reasonable amount of hits and when I see something I like, I wait for a pullback and jump in.

The stock broke out of C&H pattern and came back to retest the base. This is a shallow retracement as opposed to an ambush, so I prefer to wait for base & break. I exit as price approaches the FE and whole $ level. PFCB carved out a bearish rounded top so I couldn't resist the shorting opp. That was the best part of the trade!

Mail Bag - Gap Scan

Hi J

I noticed on your newsletter you said ANF from the gapper scan, are you referring to the Trade Ideas Scanner? If so, can you tell me which scan parameters work best?

Again thanks for your help.

Hi E,

Yes, I'm referring to the Trade-Ideas scanner. Basically, I started off with the TI pre-configured scan entitled "Stocks down big in pre-market" and I adapted to my personal needs. In the window specific filters I set a min . price of $6.00; min. daily volume of 200,000 shares/day; with a max up from the close of -5%. In the symbol lists, I exclude all ETFs, Holders, Ishares and special symbols.

In summary, I'm looking for a wide gap from previous day close, like an earnings gap or story stock. The settings I'm using limit the number of hits to a manageable level, and eliminates all those ETFs. When trading gaps, you want to focus on the momentum plays, which mostly involve individual stocks. Measure quality by number of days and check the daily for a good idea of support/resistance levels. In the case of ANF, although the number of days was few, the daily chart was setting up for a bearish island reversal because the gap was wide.

Gapper Trades - Genzyme Corporation (Public, NASDAQ:GENZ); InterDigital, Inc. (Public, NASDAQ:IDCC)

greytrader asked in the comments to last night's trading post:

Did you drop briefing.com for pre-market gappers ? I have found that Trade-Idea's gapper scan misses a lot of candidates that other scanners pick up.

I still subscribe to Briefing.com which is invaluable for news driven trading events, as well as pre/post market information including gap scans.

Trade-Ideas scanner is user defined, so you can set wide or narrow parameters as your trading plan requires. For my purposes, I prefer quality over quantity. Especially as it relates to gappers. I want a short, tight list as opposed to a catch all. It would be too time consuming for me to sift through a long list of gappers, and I would miss most of the trades unless they occurred later in the session. Hence Trade-Ideas Scanner is perfect for me because it allows me to quickly zoom in on quality, and number of prints.

I'm guessing but, I think that greytrader trades gaps exclusively, so maybe that's why he prefers other scanners.

As we can see from the above screen capture of yesterday's post market action, GENZ had a high quality as measured by days and numerous prints, which signifies lots of selling into 52 week lows.

This morning IDCC had the most prints and was set to open at 45 day lows which is significant. SKYW didn't have many prints but was set to take out 52 week lows. I didn't get to the latter, it just blew right past me, but IDCC finally developed an inverse C&H on the 15 minute timeframe. It stalled after taking out the 38% fib. extension of the ORH to the base, and I booked a partial. After a lot of dead zone, sideways trade, it finally headed lower and finished the job.



I'm not doing a technical post tonight. In after hours trade, GOOG had the most prints lower, testing 39 days as GOOG's CEO came out with a statement that "we are not immune" to economic situation. Sympathy prints BIDU, AMZN.