Seconday Price Pattern: AMP, JLLJun 12th, 2009 | By smbcapital | Category: Mike Bellafiore's (Bella's) Blogs
We spotted a trading pattern in AMP and JLL this week. Both traded below important support, their secondary price offering, and had a decent downmove below. Let’s discuss how to trade a Secondary Price, and the pattern we discovered.
Trading a secondary is a simple trade. Above the secondary price we are long. Below the secondary price we flip our position and get short. For new traders a secondary price should be support for a stock since so many are invested in the stock trading above this secondary price. If the stock trades below the secondary then all those who just invested are under water with their new shares. And these investors will usually defend this price. We expect a nice move off of this price.
On Thursday we noticed that JLL traded below its secondary price, 35, and never traded above. There was substantial volume done at 35. We were long in front of the large bid at 35. When it was eliminated, then we got short. The stock trended down all day. It was just a intraday longer term Trade to Hold Short.
During this downmove, large bids got whacked in JLL. There was a dopey program playing with the weaker short term traders on the way down. Short term traders like to hit new lows in a stock that is in a downtrend. So after 35 was eliminated, then there was a huge bid at 34.85. Some dopey algorithmic trader thought it would be cute to place a huge bid there, have the weaker short term traders hit this bid, and then try and make a few pennies on these traders. After the bid was whacked at 85c, the program quickly ticked higher. The weaker hand short term traders covered. The dopey algorithmic program won.
It did not take much thought to see what the program was doing. So when JLL neared 75c there again was a huge bid. Again the weaker short term traders whacked the bid. Again the first ticks were higher. Again the weaker day traders covered. Again the program won. Just for the record I covered the first time and took a small loss. The second time I was already short and not covering when the dopey program ticked higher after the bid hit. Like my partner Steve likes to kid, “You can fool Bella most of the times in almost all of the stocks, but you cannot fool Bella every time in every stock.”
Fast forward to Friday and AMP. I shorted below the secondary price. There were again large bids just below the secondary price. These large bids got whacked by the short term day traders. The stock ticked up, the weaker short term traders covered. To my fellow short terms traders: Seriously? Come on you are better than that. You failed to decode a very simple trading pattern in the market. I processed the program from yesterday and remained short, as did our desk. We caught a substantial downmove. I shared that the huge bid buying program in AMP was exactly the same from Thursday in JLL and that I was staying short.
Was thinking of heading to AC today with the young lady. Reminds me of the great line from the West Wing spoken to the over-worked Toby Ziegler preparing by himself for the President’s Second Inaugural, “I do not know of anyone in more need of a night in Atlantic City than you.” But for the I Don’t Know How Many Days In A Row it is probably going to rain. So I might pass.