Plays You MUST be In
There are plays in which we have an edge. You should be in these plays. For these set ups our risk versus our reward exceeds even 5x1. With these plays are upside can be 20 and our downside 1. Mr. Spencer took some time out of his weekend to put this list together for us. Let's take a look.
1) Stock pulls back to a breakout price (i.e. CFC--10.40)
You are waiting for a stock to break above a certain price. And it does. And the stock trades much higher after it breaks above this price. AND THEN the stock pulls back to this breakout price. As GMAN would say, "Load the boat!" For those not familiar with this expression: BUY!
This play occurs in stocks that have made significant moves already. If others on the desk are talking about a stock that is making a large move you should punch up the stock and enter an alert from where the move began. When the stock comes back to this price then BUY! If the stock does not hold this level then hit your stock, gather information and reevaluate.
David Kaplan – (STI) – One Good Trade – 7-23-08
Click picture to view in full size
Proper Preparation:
22-Jul-08
06:07 STI SunTrust Banks beats by $0.14, beats on revs (34.14 ) Reports Q2 (Jun) earnings of $0.78 per share, excluding non-recurring items, $0.14 better than the First Call consensus of $0.64; revenues rose 9.4% year/year to $2.6 bln vs the $2.13 bln consensus. Chief executive officer James M. Wells noted that the high costs of credit continued to take a toll on earnings, though at a slower pace than the prior quarter. Given the strengthened capital position, core earnings performance, and recent credit trends, Wells reiterates that the co doesn't have any current plans to modify the dividend or issue additional shares of common stock.
Second Day Play – 2 new upgrades from small firms and 3 reiterations from larger firms (the stock is going to move)
Levels: Gapped up above to $41 on the open continued upward, in 15 minutes of trading the following levels developed: $41.80, $43.00
Average Volume: 8.4mm
Short % of float: 8.6%
52 week range: 25.60 - 83.46
Hard work: Watched the prints and inside market and noticed the stock could not trade above $41.80 was resistance on the way up and then became support on the way during the pull-back.
Patience: Got long at 41.85 on 4th successful test of support when seller lifted.
Detailed plan: Plan was to get long as close to support as possible and hold unless support dropped. If the trade begins to move in my favor I will stay in until I see weakness or dissipation of strength.
Discipline: Executed on my plan as I sold at 42.70 as soon as I saw some selling and buying slowed.
Sharing your best trading ideas: Always
Review: I had a long bias initially because STI had positive earnings and a strong day previously and then gapped up on the open. When I saw a large pull back and then support formed at a previous level I got long. Looking back at it I should have bought a second lot when $42 lifted.
2) Stock pulls back to a level where a buyer was previously identified. And stock has already made large move off of that level (i.e. SIGM---64).
This is a GREAT risk/reward play. If one of the more experienced traders on the desk (Steve, Mike, or GMAN) has identified a major buyer at a particular price then you should set an alert at that level. If the stock pulls back to that level then get long. If the stock does not hold this level then hit your stock, gather information and reevaluate.
Example: On July 29th, one of our traders noticed an Unusual Hold on the Bid in CHK at $46.75. This Hold was shared on our Intraday Alerts and was also brought up the next day during our AM meeting.
The next day, right on the Open, CHK pulled back to that $46.75 level. This level was tested, Held, and CHK then rallied the rest of the day to a high of $51.00. This is a great example of why a stock pulling back to a level where a buyer was previously identified is a Play You Must be In.
Click picture to view in full size
3) Stock Overextended on the Open (i.e. CFC, ARB)
If a stock is discussed in the AM meeting as being overextended or prices are mentioned that would be excellent entry points for a stock that is up or down too much, then you should enter an alert at that price. If that alert goes off, then watch the stock. And if your stock begins to reverse, then establish a position and communicate with the more experienced traders on the desk who are involved.
Example: V has recently been a Stock In Play that our desk has profitably traded. During one AM meeting, Mr. Spencer pointed out the wedge shaped pattern on the daily chart of V. During the Open of July 25th (see highlighted daily candle), V sold off right on the Open, testing the support line of the wedge. This was a great example of a stock overextended on the Open. V was trading down $1.50 from its opening price for the day. It came down hard to test the support line, which was held. V quickly rose three points.
Click picture to view in full size
4) Multi-day Extended
If a stock has been up/down significantly several days in a row it is a good candidate to reverse on the Open. If you spot such a stock first seek confirmation of a reversal from the Inside Market and Prints. If these indicators confirm a reversal then pounce. This is a Trade You Must be In.
Example: Beginning on July 22nd HK had a vicious three day sell off from $40.00 to a low of $29.60. On the third day of the sell off, intraday, HK was approaching a key long term support level. The stock reversed intraday and popped 4 points. This is a Play You Must be In!
Click picture to view in full size
5) Unusual Hold on the Bid or Offer
When you discover an Unusual Hold on the Bid or Offer then pounce. Do not exit until there is a Reason to Sell or the Unusual Hold level is violated. Please share this information with our desk. Below is an example of an Unusual Hold on the Bid in HK at 26.53. After the Unusual Hold on the Bid, HK traded significantly higher intraday.
Click picture to view in full size
6) Seller stepping down and down and down and then lifts.
Get long. Buyer stepping up and up and up and then drops, then the stock is most likely to reverse. We saw this in NRG recently. There was a huge NYSE that flashed to the bid for size. NRG traded higher and higher and higher as this huge NYSE bid stepped higher. Then the bid disappeared and NRG traded back to where it started. This is a great Pattern Recognition Play. And a Trade You Must be In.
Click picture to view in full size
7) Important intraday level cleared
(Set alerts for major intraday levels). If resistance is cleared in a strong stock then get long. If support is cleared in a weak stock then get short. If there is no immediate follow through and the level is violated then close your position immediately. Reestablish when the level is breached again.
Example: After trading HK on the Open of August 12th, one of our traders noticed an important intraday level which developed at 29.10. The level of 29.10 in HK was then added to our Intraday Alerts page. Roughly thirty minutes later, HK prints at the 29.10 level established during the Open. The level of support was cleared and HK traded over a point lower. This is a Trade You Must be In.
Click picture to view in full size
8) Huge print then high bid or low offer
For a listed stock if you notice a big print on the offer and then the bid steps up this is a very bullish indicator. This should get your attention. You should look for a good entry point for this stock.
9) Held bid or offer right on the Open.
This is a very good risk/reward play. You should give this position room to move in your favor because of the volatility on the Open. But you should not allow a position that is far in the money to completely reverse on you. "No one ever went broke taking profits," as the saying goes.
10) Market strong, strong stock with held bids. Get long.
11) Premarket Unusual Held Bids and Offers.
This may give you some insight into the strength or weakness of the stock for that day.
Click picture to view in full size
Proper Preparation:
22-Jul-08
06:07 STI SunTrust Banks beats by $0.14, beats on revs (34.14 ) Reports Q2 (Jun) earnings of $0.78 per share, excluding non-recurring items, $0.14 better than the First Call consensus of $0.64; revenues rose 9.4% year/year to $2.6 bln vs the $2.13 bln consensus. Chief executive officer James M. Wells noted that the high costs of credit continued to take a toll on earnings, though at a slower pace than the prior quarter. Given the strengthened capital position, core earnings performance, and recent credit trends, Wells reiterates that the co doesn't have any current plans to modify the dividend or issue additional shares of common stock.
Second Day Play – 2 new upgrades from small firms and 3 reiterations from larger firms (the stock is going to move)
Levels: Gapped up above to $41 on the open continued upward, in 15 minutes of trading the following levels developed: $41.80, $43.00
Average Volume: 8.4mm
Short % of float: 8.6%
52 week range: 25.60 - 83.46
Hard work: Watched the prints and inside market and noticed the stock could not trade above $41.80 was resistance on the way up and then became support on the way during the pull-back.
Patience: Got long at 41.85 on 4th successful test of support when seller lifted.
Detailed plan: Plan was to get long as close to support as possible and hold unless support dropped. If the trade begins to move in my favor I will stay in until I see weakness or dissipation of strength.
Discipline: Executed on my plan as I sold at 42.70 as soon as I saw some selling and buying slowed.
Sharing your best trading ideas: Always
Review: I had a long bias initially because STI had positive earnings and a strong day previously and then gapped up on the open. When I saw a large pull back and then support formed at a previous level I got long. Looking back at it I should have bought a second lot when $42 lifted.
2) Stock pulls back to a level where a buyer was previously identified. And stock has already made large move off of that level (i.e. SIGM---64).
This is a GREAT risk/reward play. If one of the more experienced traders on the desk (Steve, Mike, or GMAN) has identified a major buyer at a particular price then you should set an alert at that level. If the stock pulls back to that level then get long. If the stock does not hold this level then hit your stock, gather information and reevaluate.
Example: On July 29th, one of our traders noticed an Unusual Hold on the Bid in CHK at $46.75. This Hold was shared on our Intraday Alerts and was also brought up the next day during our AM meeting.
The next day, right on the Open, CHK pulled back to that $46.75 level. This level was tested, Held, and CHK then rallied the rest of the day to a high of $51.00. This is a great example of why a stock pulling back to a level where a buyer was previously identified is a Play You Must be In.
Click picture to view in full size
3) Stock Overextended on the Open (i.e. CFC, ARB)
If a stock is discussed in the AM meeting as being overextended or prices are mentioned that would be excellent entry points for a stock that is up or down too much, then you should enter an alert at that price. If that alert goes off, then watch the stock. And if your stock begins to reverse, then establish a position and communicate with the more experienced traders on the desk who are involved.
Example: V has recently been a Stock In Play that our desk has profitably traded. During one AM meeting, Mr. Spencer pointed out the wedge shaped pattern on the daily chart of V. During the Open of July 25th (see highlighted daily candle), V sold off right on the Open, testing the support line of the wedge. This was a great example of a stock overextended on the Open. V was trading down $1.50 from its opening price for the day. It came down hard to test the support line, which was held. V quickly rose three points.
Click picture to view in full size
4) Multi-day Extended
If a stock has been up/down significantly several days in a row it is a good candidate to reverse on the Open. If you spot such a stock first seek confirmation of a reversal from the Inside Market and Prints. If these indicators confirm a reversal then pounce. This is a Trade You Must be In.
Example: Beginning on July 22nd HK had a vicious three day sell off from $40.00 to a low of $29.60. On the third day of the sell off, intraday, HK was approaching a key long term support level. The stock reversed intraday and popped 4 points. This is a Play You Must be In!
Click picture to view in full size
5) Unusual Hold on the Bid or Offer
When you discover an Unusual Hold on the Bid or Offer then pounce. Do not exit until there is a Reason to Sell or the Unusual Hold level is violated. Please share this information with our desk. Below is an example of an Unusual Hold on the Bid in HK at 26.53. After the Unusual Hold on the Bid, HK traded significantly higher intraday.
Click picture to view in full size
6) Seller stepping down and down and down and then lifts.
Get long. Buyer stepping up and up and up and then drops, then the stock is most likely to reverse. We saw this in NRG recently. There was a huge NYSE that flashed to the bid for size. NRG traded higher and higher and higher as this huge NYSE bid stepped higher. Then the bid disappeared and NRG traded back to where it started. This is a great Pattern Recognition Play. And a Trade You Must be In.
Click picture to view in full size
7) Important intraday level cleared
(Set alerts for major intraday levels). If resistance is cleared in a strong stock then get long. If support is cleared in a weak stock then get short. If there is no immediate follow through and the level is violated then close your position immediately. Reestablish when the level is breached again.
Example: After trading HK on the Open of August 12th, one of our traders noticed an important intraday level which developed at 29.10. The level of 29.10 in HK was then added to our Intraday Alerts page. Roughly thirty minutes later, HK prints at the 29.10 level established during the Open. The level of support was cleared and HK traded over a point lower. This is a Trade You Must be In.
Click picture to view in full size
8) Huge print then high bid or low offer
For a listed stock if you notice a big print on the offer and then the bid steps up this is a very bullish indicator. This should get your attention. You should look for a good entry point for this stock.
9) Held bid or offer right on the Open.
This is a very good risk/reward play. You should give this position room to move in your favor because of the volatility on the Open. But you should not allow a position that is far in the money to completely reverse on you. "No one ever went broke taking profits," as the saying goes.
10) Market strong, strong stock with held bids. Get long.
11) Premarket Unusual Held Bids and Offers.
This may give you some insight into the strength or weakness of the stock for that day.