Trading Review for 1/27/2000
Yesterday we said, "Today was one of those narrow trading range days that will likely end up coiling the market for a large move in the next few days". Well, today the coil sprung and there may be still more to come.
Successful trading is about knowing where to look for opportunities, knowing when to seize the opportunity (or not), and managing their risk to maximize their profits. To that end, let's take a quick look at Wednesday's trading action relative to the top Trade Prospector signals:
Volatility Compressions
TMPW gapped down to 153 and sold down to 151, rallied to 159, sold off to 152, and then ran to 160 in the last minutes of the session
PEB had a delayed opening due to order imbalances after reporting a 46% rise in earnings -needless to say, it's action was explosive, gapping open to 168, running to 189 1/4 by noon, and then selling off for the rest of the day to a low of 161, then rallying late in the session to 172 3/16
RIMM opened at 72 and then sold off the rest of the day (congesting for a while just under the 70.6 sell boundary) to a low of 66, finally staging a little rally to close at 68 1/8
Volatility compression trades are, well, volatile. But they offer the attentive trader significant profit potential.
TMPW fell through the 152.4 sell boundary shortly after the open triggering traders short. The subsequent reversal at 151 ultimately stopped out trades for from breakeven to a small gain. Aggressive traders reversed their positions and were rewarded with a 5-6 point gain. Very aggressive traders would have risked the failure at 159 and gone short and profited - although most traders would have been satisfied with taking 5-6 points profit (and not trading the reversal).
PEB gapped well beyond the 165.1 buy boundary and would have been a no trade. However, aggressive traders who nevertheless continued to track the stock would have had a potential long entry late in the day when the stock finished selling off from its high and bottomed out at 161, effectively bouncing off the 160 sell limit. Entering long here (and risking no more than 159 7/8) would have given these traders about 10 points profit. An unique lesson in never completely counting out a stock you aren't able to get into in the morning.
RIMM triggered traders short at the 70.6 sell boundary. After falling below 70, it staged a fractional rebound and congested just under 70.6 for about an hour. Exit stops set above 70.6 (e.g, 70 3/4) would not have been hit and traders would have ultimately realized approximately 4 points profit for the day.
Trading Range Patterns
CRA gapped open to 248 1/2, continued to 256, and then sold off the rest of the day to a low of 226 1/4, finally closing at 232
SPX opened at 1404.1 and rallied to 1418.9, only to begin falling to a low of 1371, finally staging a rally in the last hour of trading to close at 1398.6
VRSN opened at 192 1/8, ran to 193 5/8, and then sold off to a low of 173 and closed at 175 1/32
JNPR opened at 145 1/4, shot briefly to 148 (although it traded for a while twice at 147), sold down to 141 1/8, rallied back to 145, then sold back to 142 and closed at 142 7/16
Trading range patterns often produce good volatility as well. And as we've said before, volatility is a trader's friend because it produces opportunities
CRA triggered traders long at the 254.3 buy boundary, but then they were stopped out with breakeven to small profits when it reversed at 256. Aggressive traders took the reversal back through the buy boundary as an opportunity to short the stock and were rewarded with 28-29 points profit. All other traders were triggered short at the 240.3 sell boundary and realized 12-13 points profit.
SPX option traders were triggered long calls at the 1411.9 buy boundary and saw 1-5 index points profit before the index reversed. Aggressive traders reversed into puts below 1412 and saw 35-40 index points profit. Other traders entered puts at the 1399.4 boundary and saw 20-25 index points profit.
VRSN ran right up to the 193.6 buy boundary and reversed. Traders who used 193 5/8 were triggered first long and then were quickly stopped out with a 1/2-1 point loss. Traders who used a 193 3/4 stop were not hit. Aggressive traders who recognized the failure at resistance were triggered short for an 18-20 point gain. Other traders were triggered short at the 186.9 sell boundary for 12-13 points profit.
JNPR's rally failed below the 148.6 resistance and aggressive traders would have entered short and realized between about 6 points profit. For all other traders this was a no trade.
Breakthrough Momentum
NDX opened at 3628.9 and rallied out of the gate to a high of 3701.3, but then was hit with selling pressure and fell to a low of 3512.1 before staging a late afternoon rally to close at 3593.2
NSOL gapped open to 240, traded up to 249, and then (like most of the market) sold off to a low of 228 near 3pm and then staged a late afternoon rally to close at 239 11/16
SPX opened at 1404.1 and rallied to 1418.9, only to begin falling to a low of 1371, finally staging a rally in the last hour of trading to close at 1398.6
YHOO gapped open to 332 7/16, rallied to 339 9/16, then sold off along a winding road to a low of 325 1/8 before bouncing back to close at 337 3/8
NDX triggered index option traders long calls at the 3641.5 boundary and they were rewarded with about 55 index points profit. Traders were then triggered into puts at the 3597.6 boundary and picked up another 75-80 index points profit. Aggressive traders who risked an early entry upon the index falling back through the 3641.5 upper boundary realized an additional 45 index points profit.
NSOL did not offer traders a good entry because it gapped 3 points over the buy boundary and never came back enough for a good trade entry.
SPX triggered Breakthrough Momentum traders into index calls at the 1409 buy boundary adn they realized 8-9 index points profit. They were again triggered (into puts this time) at the 1399.4 boundary for 26-27 index points profit.
YHOO triggered traders long at the open (the gap open was within 1/2 point of the upper boundary) and they realized about 6 points profit. They were then briefly triggered into a short trades at the 325.4 boundary but were stopped out for about a 1 point loss. They were finally triggered long again at the 331.9 upper boundary for the end of day rally and saw 5 more points profit at the close.
Breakout Patterns
STT gapped open to 81 7/16, was bought up to 82 1/2, sold off back down to 80 3/4, rallied again to 82, sold off again to 81, and then rallied at the end of the day to close at the high of the day of 82 3/4
CMB gapped open to 79 7/16, sold back down to 78 9/16, rallied again to 80, sold off to 79, and then rallied once again to a high of 81 1/2, to close at 81
CLS opened at 39 1/2 and sold off to a low of 36, finally rallying to close at 37 9/16
DELL gapped lower to open at 39 17/32, briefly rallied to around 41, and then sold off to close at 37 9/16
PLCE gaped open to 13 1/8, was bought up to 14 1/16 where it was sold off back down to 13 1/8 before rallying in the last five minutes of the session to close at 13 3/4
STT triggered traders long at the open (it was within 1/2 point of the 81.3 boundary) but were stopped out for breakeven when the stocked reversed at 82 1/2. Aggressive traders wound up being initially whipsawed around the 81.3 boundary if they tried reversing positions. An excellent lesson that you should a whipsaw no more than twice and then you should stand back and wait for better confirmation that the boundary has not become a gravitation cluster for prices. An excellent rule to remember when trading reversals is to expand the reentry zone by 1 point on the side of the reversal, this will reduce the incidience of whipsaw. In this case, having reversed at 82 1/2 and fallen back through the 81 7/16 boundary, aggressive traders would go short but would NOT go long again until 82 7/16 was breached.
CMB initially failed just under the 79.5 boundary and then finally breached it only to reverse at 80 and fall back through down to 79. Traders using an initial 1 point below entry stop would not have been affected. Traders using a closer stop, were stopped out for a small loss. Those who were stopped out and then saw a whipsaw coming when the price action again bounced back to 79.5, would have raised their entry price to 80 1/2 and finally closed that trade for 1/2 point profit. Those who used a 1+ point initial stop realized about 1 1/2 points profit.
CLS triggered traders short at the 38.9 lower boundary for about 2 points profit.
DELL triggered traders long at the 40.8 boundary and immediately reversed at 41 stopping traders out for a 1 point loss and (because the sell boundary was at 39.8) triggering them short for which they realized 2+ points profit.
PLCE failed to breach the 14.1 upper boundary and instead failed just below it. Aggressive traders risked a short at that point resulting in fractional gains. Otherwise this was a no trade.
Mutliday Patterns
CRA gapped open to 248 1/2, continued to 256, and then sold off the rest of the day to a low of 226 1/4, finally closing at 232
CMRC gapped open over 5 points to open at 191, traded as high as 192 7/8, only to sell off to a low of 175, and finally staged a rally to close at 181 3/16
VRSN opened at 192 1/8, ran to 193 5/8, and then sold off to a low of 173 and closed at 175 1/32
TERN opened at 115 3/4 and immediately sold off to 112, staged a minor rally back to 114, and then sold off again to a low of 108 before again staging a rally back to 113, and then selling off to close at 111 5/16
GLW gapped open to 158 3/4, traded to a high of 176 1/2 in the next three hours and then fell off the cliff to trade back down and close at 162
Multiday patterns, like volatlity compressions, often result in high volatility for the stocks.
CRA triggered traders long at the 254.3 buy boundary, but then they were stopped out with breakeven to small profits when it reversed at 256. Aggressive traders took the reversal back through the buy boundary as an opportunity to short the stock and were rewarded with 28-29 points profit. All other traders were triggered short at the 240.3 sell boundary and realized 12-13 points profit.
CMRC head faked and triggered traders long at the 192.1 boundary and then proceded to reverse at 192 7/8 thus stopping traders out for a 1 point loss. Aggressive traders reversed short and ultimately saw about 14 points profit. Other traders waited for the breach of the 181.6 lower boundary and saw 5-6 points profit.
VRSN ran right up to the 193.6 buy boundary and reversed. Traders who used 193 5/8 were triggered first long and then were quickly stopped out with a 1/2-1 point loss. Traders who used a 193 3/4 stop were not hit. Aggressive traders who recognized the failure at resistance were triggered short for an 18-20 point gain. Other traders were triggered short at the 186.9 sell boundary for 12-13 points profit.
TERN initially whipsawed traders who went short at the breach of the 112.7 lower price boundary only to see their 113.7 initial stop taken out. They were then triggered short at 111.7 (1 point further down following the whipsaw) and were ultimately stopped out for a 2+ points gain.
GLW triggered traders long at 159.9 as it raced to the 176 1/2 high offering them 15+ points profit in a three hour period. Aggressive trades may have attempted a reversal somewhere below 176 1/2 (e.g., as the xx SR was penetrated) and this would have turned out well - however, most traders (including most of us) would have been happy with the 15 points and left the stock alone the rest of the day.
Momentum Intersections
CCL gapped down to open at 42 1/2, managed to stage a rebound off the open to recover to 43 3/4, before being hit with selling that drove it back down to a low of 42 5/16, and finally late afternoon buying allowed it to recover to 42 3/4
SYKE opened at 25 3/16, sold briefly to 24 9/16, before rallying into the lunch hour for a high of 28 1/2, only to be hit with post-lunch selling back down to 27 1/4, but managed a late afternoon rally back up to close at 28 3/8
PX gapped down to 42 1/4, trading as low as 42 1/8 before staging a rally over the next hour to just under 44, where it congested for the rest of the day and closed at 43 3/4
SBUX was trapped in a narrow trading range after showing high momentum yesterday. It opened at 28 7/8, selling down to 28 5/8, rallied to 29 1/8, sold back to a low of 28 5/16, and finally rallied back to close at the opening price of 28 7/8
CCL failed to offer a good trade entry.
SYKE triggered traders long at the 26 upper boundary for a 1 1/2-2 points profit.
PX triggered shorts at the open but traders were stopped out for a 1 point loss when the stock abruptly reversed at 42 1/8. Aggressive traders who reversed long managed to recover most of that initial one point loss. Otherwise the rest of the day presented no further trades.
SBUX offered no signals as it congested following its high momentum ramp yesterday
Trading Channel
From the Trading Channel Breaches group - NDX, NSOL, MLNM, YHOO
From the Near Trading Channel group - BLDP, LRCX, CLFY. CPTH, LCOS
From the Narrow Trading Channel group - OCLI, JDSU, AVA, VRSN
NDX opened at 3628.9 and rallied out of the gate to a high of 3701.3, but then was hit with selling pressure and fell to a low of 3512.1 before staging a late afternoon rally to close at 3593.2
NSOL gapped open to 240, traded up to 249, and then (like most of the market) sold off to a low of 228 near 3pm and then staged a late afternoon rally to close at 239 11/16
MLNM gapped open about 7 to 193, where it congested for for most of the morning before breaking higher 199 1/4 and closing at 195 3/4
YHOO gapped open to 332 7/16, rallied to 339 9/16, then sold off along a winding road to a low of 325 1/8 before bouncing back to close at 337 3/8
BLDP opened at 61 1/2, sold to 60, and then rallied to 63 13/16 before selling back off to close at 61 5/8
LRCX opened at 131 15/32, moved up to 136 11/16, and then sold off in a winding road fashion to a low of 129 and closed at 129 1/2
CLFY gapped open to 125 5/16, rallied to 131 5/8, and then sold off to a low of 120 7/8 before rallying and closing at 123 1/2
CPTH opened at 75 1/2 and immediately sold off to a low of 68 1/2 and closed at 70 1/16
LCOS gapped lower to 77 11/16, managed to fight back to about 79 1/2, and then sold off to a low of 77 and finally closed at 78 1/8
OCLI gapped way up to 421 1/2, moved up to 426 27/32, and then sold off to a low of 384 1/16 before closing at 391 7/16
JDSU gapped up 12-13 points to open at 231, hitting a high of 232 1/2, before falling all the way back to a low of 210 and closing at 212 1/16
AVA was volatile - in the first half hour it opened at 34 15/16, sold down to 33, came back to 35 1/2, and fell back to 33 - it finally bottomed at 32 1/4 and rallied back to 35 15/16, only to selloff and close at 33 7/8
VRSN opened at 192 1/8, ran to 193 5/8, and then sold off to a low of 173 and closed at 175 1/32
Trading channel trades can be simple and rewarding.
NDX initially opened below its trading channel but managed to claw its way back into it only to fall back down through it, thus triggering channel traders short (index puts) at the 3686.7 boundary for an impressive 170+ index points profit.
NSOL opened back inside its channel and rallied still within the channel until finally selling off throught the lower boundary at 236.4 to trigger traders short for a 7+ point gain.
MLNM remained above its trading channel all day and offered no suitable channel trade.
YHOO clawed its way back in its trading channel only to meet with selling pressure which triggered traders short at the 334.8 lower boundary for about 8 points profit. YHOO finished the day back inside its trading channel and should be watched tomorrow for another channel trade.
BLDP triggered traders long at the 63 boundary only to stop them out with a minor loss when it could not sustain its channel breaching momentum.
LRCX likewise first triggered traders long at the 135.2 boundary and then ultimately stopped them out for a breakeven or small profit trade when its momentum failed.
CLFY first triggered traders long at the 129.1 boundary for a 1 1/2-2 point profit and then triggered them short at the 122.3 lower boundary for another 1 point profit.
CPTH triggered traders short at the 74.2 lower channel boundary for a nice 4-5 points profit.
LCOS initially triggered traders long at the 78.9 boundary only to stop them out for a one point loss upon failing its rally at the 79 1/2 level.
OCLI remained above its trading channel for most of the day and failed to offer a good channel trade entry point
JDSU opened above its trading channel and finally sold but never penetrated its lower channel boundary of 207.8 - no channel trade
AVA while volatility failed to breach its trading channel and there was no trade entry
VRSN offered an excellent channel trade short entry when it fell through its 187.5 lower boundary for a nice 13 points profit.
Envelope Patterns
DOX opened at 56 7/8, sold off to a low of 49 1/2, and finally recoverd in the last hour to close at 53 3/4
VLNC opened at 31, congested around 30 for a couple of hours, sold down to 29 1/16 and finally closed back at 30
BMCS opened at 40 5/16 and sold off to 37 3/8 to close at 38 15/16
SAP gapped lower to open at 67 3/4, rallied to 69 7/16, and then sold off to close at 68 9/16
DOX triggered traders short at the 55.3 lower boundary for a 4-5 point profit.
VLNC offered no entry as it congested after punching through its trading envelope yesterday
BMCS triggered traders short at the 38.9 boundary for 1/2 point gain
SAP offered no trade entry.
Whipsaws can happen in choppy markets and traders should always step away from the trade or give themselves more distance from the original entry boundary when a reversal occurs (such as adding one point to the reversal side of the trade entry boundary) to reduce the effect. Losses are a fact of life, but they can be easily kept to a minimum while maximizing your profits with proper stop management.
Recognizing that a mere one point per day profit when trading 500 shares (or 5 option contracts) is $120,000 per year, you begin to understand the potential for profit in applying Trade Prospector's information.
Copyright 2000, by Third Millennium Trading. All rights reserved. This information is proprietary and reserved for the personal use of Trade Prospector users and registrants. No other use is permitted without the express authorization of Third Millennium Trading.
Disclaimer: Third Millennium Trading does not recommend the purchase or short sale of any stocks. Trading should be based on your own understanding of market conditions, price patterns and risk. The information presented here is designed to contribute to your understanding. Controlling risk through the use of protective stops is critical (more).