Tuesday, July 10, 2007

Dummy Gapper (Short) Trade of the Day - Cummins Inc. (Public, NYSE:CMI)

Yesterday CMI presented a great gapper long opportunity and today it presented a great gapper short for those who were patient enough to wait for the setup to develop. CMI gapped down and attempted to rally on the open but only managed to tag yesterday's late day swing low. Then we had a lot of choppiness as buyers and sellers battled it out.

On the 5 minute minute chart below you will notice that CMI managed to close above the 20 ema, but was quickly shaken out on the next bar. This usually means that the bearish bias is intact and will develop into a good short over time.

Following the shakeout, price pulled back to the base and I shorted it on a break of the 15 min. 9th bar low. I took a partial as price approached the rising 50 MA. Once price fell below the 50MA, it could not recapture it on a closing basis, so that impiled more selling. I covered the balance after it tagged the 75% Fibonacci extension of the previous day high to the ORL.


6 comments:

Joe said...

Jamie - Nice trade. I would have been tempted to take the trade on the during the 8th 15 minute candle. Had I done that I might have been shaken out. Could you provide some guidance as to why you passed on the 8th candle but took the 11th? Thanks in advance for your help.

bl said...

Jamie,
It's as easy as that...alot of patience. Guess these gapper blogs aren't for the scalper. Put part of your library in my Trader X binder. Thanks,

Jamie said...

Hey Joe,

I passed on the 8th bar because CMI had just shed over 1 pt. from the previous bar high. I like to short from a NR bar especially on these higher priced stocks.

The bar by bar shakeout that I pointed out on the 5 minute chart usually brings price back to the base and then trades sideways before breaking. I've observed this pattern often so I was hoping that CMI would play out accordingly.

Also, if possible you want to trade off of NR low volume bars - price contraction leading to price expansion. This is one of the most important aspects that will protect you from chasing price.

Jamie said...

BL,

CMI had a euphoric volume spike end of day yesterday after topping up at $120 and some serious selling end of day. Last earnings it also sold off big so my patience was planned because I knew if I stuck with this one, the reward would be well worth the wait.

Scalping from pivot points. I've covered a few posts on that recently - AAPL and AMZN.

I going to focus more on these early session scalps tomorrow. Today I found myself hardly trading after scoping out a few short trades and then finding out no shares available through IB.

bl said...

Jamie,
What about the momo's from the get go: AAPL BIDU LCAPA ALXN IVGN...amazing. No real set up just a green lite! Figured a method to catch those? I have a 150 naz mostly >$40 stocks. Maybe just see which ones come to life fast!

Jamie said...

BL,

I noticed that AAPL and BIDU both consolidated around 10:00 and then extended another 38% from the ORL to the 10:00 swing high. It's not something I'm tracking on a regular basis, but it does happen a lot on these types of momo moves off of the open.