Sometimes You Don't and Sometimes They Do

Sometimes you sell...

Sold

when the best buy...

Different strokes for different folks.

Nasty Pitch

The last few days I've felt like I've been in a batters box against my home team facing their elite staff throwing nothing but the nastiest arsenal of sliders, curves, two seamers, splits and brush back pitches. What can you do after getting spun into the dirt from a 2-8 curve than get back up and brush yourself off for the next one to fall into your zone.

It's a useful reminder that the market can do anything at any time and this is one of those times when everything that seemed so clear is now fuzzy and out of focus. Everything I follow screamed correction and just when I was positioning myself to take advantage of this the floor didn't fall in but levitated, negating most of my ETF sell signals today and bringing the Russell and NASDAQ back to the forefront. I felt like this was strike two swinging like a whirling dervish, so the only thing to do is stand up and brush off and look at what is happening now.

With the NASDAQ breaking out of it's range up 1.83% on higher volume and new 52-Week highs while the Russell rebounded 1.8% today and is approaching fresh highs as well, I consider all my bearish signals negated. The strength of today's move is further evident as both of these indexes closed near the high of the the days range, giving nothing back. The only rational thing to do is admit I am mistaken in believing the market is correcting, change my opinion, and look for opportunity on the long side.  

COMP

RUT

I didn't have much difficulty finding stocks I was interested in being in as I have continued to upkeep my watch list. The stocks that I choose today were LCI, PRLB, a low priced lotto RVLT, SAIA, and SMP.  My position size on these was slightly smaller than usual because I don't know if there is another nasty pitch waiting for me tomorrow or not.  I'll observe how these and the general market act over the next few days before committing myself further.  

LCI

PRLB

RVLT

SAIA

SMP

CFNL Trade Plan

CFNL

One stock triggered from my watch list so I took a position in CFNL for a swing trade. CFNL is in my Year High Volume watch list for the month of October so I've been stalking this for quite some time now waiting for a set-up. The trigger for the trade today was a wide range 7 day that followed a narrow range 7 with an increase in volume from the previous session. The wide range bar triggered first and I waited for volume confirmation before taking an entry at 15.35 with a stop at 14.87, risking 1%. Volume continued through the close and established another year high volume day.

My first target is 15.83, a 1R gain at which point I will ratchet my stop up to 14.94 to cut the risk exposure as much as possible to 0.5R. My next target is 16.31 when I'll move my stop to 15.83 to lock in 1R. At this price the stock will be at all time highs with no overhead supply so I'll adjust my stop incrementally in attempt to balance catching as much of the swing as possible without choking off the trade too early.

BGMD Trade Hypothesis

When markets print very high volume, they undergo significant ownership change that exerts lasting influence on price development. -Alan Farley

The above quote is highlighted in my trading journal and one I return to. This concept is what has drawn me to documenting stocks making new year high volume and keeping them in a watch list to observe their price action down the road. This idea also complements the market maxim that volume precedes price. In keeping with this, I decided to take a lottery trade today with a small position in BGMD.

 Normally I shy away from stocks at their 52-Week low, let alone their all time low, however the volume action over the preceding three sessions drew my interest as each day was a new year high. I'm not sure if someone knows something or expects something, but the volume action clearly indicates to me that there is a change occurring here. I also found it notable that this transition happened while price action was in a tight range.

 I position sized so that worse case scenario, I wake up Friday to find the company has gone bust,  my maximum loss is 2% of my total account size. Best case scenario is that there is legitimate demand for this stock and it's being accumulated and I'm positioned early in the move.

BGMD

Trade Review: Opening Range Breakout

Yesterday I mentioned in my weekend review that I felt the market right now is frothy and as such I was going to be more discriminating in my set-up selection and focus upon beaten down or highly shorted stocks. I considered taking smaller positions with wider stops to adjust for volatility as an option, but decided instead to look for short-term opportunities for a day trade. One stock that caught my eye was WNR.

Recently I came to a fundamental shift in my trading philosophy. This shift in awareness occurred serendipitously in April when I attended a trading seminar by Pradeep Bonde at StockBee as well as coming across three books, 'Day Trading With Short Term Price Patterns and Opening Range Breakout' by Tony Crable, 'Hit and Run Trading' by Jeff Cooper, and 'Trading the 10 O'clock Bulls' by Geoff Bysshe.

One of the central principles is that from range contraction comes range expansion and that price tends to move in the direction of this expansion. To gauge range contraction I focus specifically on the same price pattern used by Crable, Narrow Range 7 and Inside Day 4. After the close of the market I scan through my set-ups and watch list for stocks that meet this price bar pattern and place it on a list of 12 that I will watch for the open.


Regarding range expansion, Jeff Cooper notes, “Over the years, I have observed the number of times a stock will trade around its 50-Day moving average for a period of time, and then without warning, explode either to the upside or downside.”


When preparing for this week and making watch list I noted a scan that a number of oil/refineries were in the top 20 and one in particular stood out, WNR. In addition to what I believe to be constructive price action, there was an ID4 that touched the 50MA. As an added bonus, according to FinViz 25% of the float on this is short. I considered this a low risk trade that if triggered should work immediately with price confirming in the direction of the break.

WNR

So now that I had the set up I simple waited until the trigger, a break of the opening range high.  At first my bias was to the downside as there was a price gap up/fade on the open so I set a reminder alert in case there was a reversal and entry signal later in the session.

WNR OR

I differ slightly from what Jeff Cooper considers a Range Expansion.  For consistency with NR7 I use a WR7 which WNR met at the end of the day. Under more preferred market conditions I would have held this for a swing but given my belief that this is market is has breadth issues I opted to sell the position.


Another trade I took today was HAIN which I've been watching for weeks now after it had an earnings break out. 3 days ago a logical pivot low was established confirmed by a higher close the next day. I felt confident about this stock given that it is catalyst driven, confirmed a logical start to a swing and had an inside day 4.

HAIN

This triggered an entry signal early which I took, unfortunately sometimes even the best laid plans... My exit was very premature.

HAIN OR