A Small Rip Can Lead To A Big Chop?

sspencerSteven Spencer (Steve's) Blogs, Technical Plays, Trading Theory2 Comments

I foolishly decided that buying NTRS on a pullback to 48.50 this morning was a great risk/reward trade.  NTRS had broken its recent downtrend yesterday and closed at the high of the day on good relative volume.  In my many years of trading this has proven to be a high percentage play.  BUT during the past three weeks I have noticed that strong finishers, whether they trended up or down for the day, were tending to reverse the following trading day.  On several occasions I have even made a counter-trend Second Day Play to take advantage of this pattern.

Nevertheless while reviewing NTRS’ chart last night the 48.50 level looked so good to me that I decided if it pulled back to that level this morning I would get long.  I even had one of our interns include it as the “Best AM Idea”.  Of course the trade didn’t work.  In fact, it was a great short below that level and trended down all the way to the 47.30s prior to some late day buying.

I’m not going to guess as to what underlying factors are causing so many second day reversals but instead will focus on simply making the “reversal” trade as often as possible.  I have started a spreadsheet to track various attributes of the stocks that are trending very strongly on a particular day so I can closely track other recent trading characteristics of these stocks to develop a more detailed trading edge.

I have included a chart below of POT that is a prime candidate for this reversal trade tomorrow.  It would be preferable if it gapped above today’s high and I could short it on a drop below 91 and look for a move down to89.  My only slight concern with this trade not possibly working is that POT was accumulated as part of a general buying wave today in all the Ag name such as MOS, MON, and CF.

I will tweet further details of my trading plan in POT in the pre-market and after the open on my twitter account. @spencermagic

2 Comments on “A Small Rip Can Lead To A Big Chop?”

  1. POT was 1 of the strongest stocks in the market today..You would expect some sort of follow through, if the overall market cooperates..89, and 90 was supported nicely today. I was long above 89.50 and caught the move to 91..Definitely keeping this stock on my radar tomorrow

  2. 91.61 is a gap fill..Lots of air above that..This stock has been a major dog tho!

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