Trading Review for 1/28/2000
Many stocks staged a multipoint rally within the last 10-15 minutes of trading. This could indicate buy programs kicking in to bottom fish and may be an indication of a near term bottom forming.
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 opened at 153 5/8 and sold off to about 142 at 2pm when it staged a minor rally back to about 147 before continuing its selloff to a low of 137 5/8 and finally closing at 142
JNPR gapped open down to 139 but rallied quickly to 145 7/8 before selling off the rest of the day to a low of 138 7/16 and closed at 140 3/4
BOBJ opened at 84 (hitting a high of 84 1/2) and then sold off to a low of 70 7/16 to close at 72 1/16
Volatility compression trades are, well, volatile. But they offer the attentive trader significant profit potential.
TMPW triggered shorts at the 150.9 boundary and delivered 8-12 points profit
JNPR initially gapped too far below the 140.4 lower boundary to trigger shorts, but after regaining some ground and again falling, traders were triggered short for a 1-2 point profit.
BOBJ triggered traders short at the 79.2 lower boundary for about 7 points profit
Trading Range Patterns
AFFX gapped open at 219 1/4 (hitting a low of 215) and then rallied to 235 before selling off along a winding path between 220 and 230 to close at 228 1/8
HGSI opened at 199 and hit a high of 200 1/4 before selling off to a low of 185 and closing at 191 1/8
AVA gapped open to 33 1/6 and sold off to a low of 28 11/16 before managing a slight afternoon uptrend that let it close at 31 1/2
MCOM gapped open down to 98 7/8 before quickly rallying to 109 1/2 and then selling off with the rest of the market to close at 101 3/4
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
AFFX initially foiled trade entries by gapping well below the 222 lower boundary. However, upon its failed rally near the 236 upper boundary, aggressive traders were triggered short for 13-14 points profit. Conservative traders picked up 1 point profit after the 222 lower boundary was again breached.
HGSI triggered traders short at the 197.4 lower boundary for a 10-11 point profit
AVA also triggered traders short at the 32.2 lower boundary for about 3 points profit
Breakthrough Momentum
NSOL gapped down to open at 234 1/2, quickly rallied to a high of 245 1/4, and then sold off to a low of 217 to close at 223
YHOO opened at 333 9/16, immediately rallied to 343, and then sold off to a low of 309 5/8 to close at 313 1/4
BRCM gapped down to open at 278 1/4, rallied back to about 286, sold off to a low of 272 7/16, and then managed to rally back to a high of 290 and closed at 284
NSOL offered traders short entry after the price action eventually trader through the 237.3 lower boundary for 19-20 points profit.
YHOO initially triggered traders long at the 340.8 upper boundary but then stopped them out with 1 point profit as it began selling off - it subsequently triggered shorts at the 332.1 lower boundary for 20-21 points profit
BRCM also initially triggered traders long at the 282.4 upper boundary and then stopped them out for 2 points profit when it sold off. Aggressive traders recognizing the bounce off the 272.5 lower boundary had one more opportunity to go long for about 15 points profit.
Breakout Patterns
STT gapped lower to open at 80 7/8 and sold off for the rest fo the day to close at 78 3/4
JNJ was one of the few stocks to have a consistently up day - opening at 80 7/8 and rallying the whole day to a high of 85 3/16 and closing at 84 1/2
NE opened at 27 15/16, rallied to 29 11/16, and then sold off marginally and treaded water to close at 29
UAL opened at 56 7/8, quickly shot to 57 15/16, and then traded within a very narrow band to close at 57 7/8
STT gave traders a short entry at the 80.7 lower boundary for a 2 point gain.
JNJ triggered traders long at the 83.1 upper boundary for a 1 1/2-2 point gain
NE traded within the boundaries and offered no trade entry
UAL triggered traders long at the 57.3 upper boundary for fractional gains.
Mutliday Patterns
AFFX gapped open at 219 1/4 (hitting a low of 215) and then rallied to 235 before selling off along a winding path between 220 and 230 to close at 228 1/8
VIGN gapped lower to open at 214 3/4, managed to claw back to 220 7/8, only to selloff to a low of 198 and close at 207
HGSI opened at 199 and hit a high of 200 1/4 before selling off to a low of 185 and closing at 191 1/8
EBAY gapped down to open at 151, was briefly bought back up to 153, and then sold off to a low of 145 before staging one last gasp rally back to 150 and then selling off back down to 145 and closing at 147 9/16
Multiday patterns, like volatlity compressions, often result in high volatility for the stocks.
AFFX initially foiled trade entries by gapping well below the 222 lower boundary. However, upon its failed rally near the 236 upper boundary, aggressive traders were triggered short for 13-14 points profit. Conservative traders picked up 1 point profit after the 222 lower boundary was again breached.
VIGN gapped well below the trade entry boundaries and did not offer a good entry
HGSI triggered traders short at the 197.4 lower boundary for a 10-11 point profit
EBAY offered good short entry at the 149.2 lower boundary for a 3 point profit
Momentum Intersections
USWB opened at 31 7/16 and sold off the rest of the day to a low of 26 1/8 and closed at 27 7/16
EBAY gapped down to open at 151, was briefly bought back up to 153, and then sold off to a low of 145 before staging one last gasp rally back to 150 and then selling off back down to 145 and closing at 147 9/16
TLAB opened at 58 and sold off to a low of 54 1/8 before closing at 55 1/16
USWB gapped more than 1/2 point below the lower boundary of 32.7 and did not offer a good entry
EBAY offered only aggressive traders who recognized the failed rally at the 153.6 lower boundary an opportunity to risk a short which would have given them 2-8 points profit
TLAB gave short entry at the 57.9 lower boundary for a 3 point profit
Trading Channel
From the Trading Channel Breaches group - SDLI, ITWO, ETEK
From the Near Trading Channel group - AVA, HNCS, RIMM, AAPL
From the Narrow Trading Channel group - OCLI, CHKP, AFFX, JDSU
SDLI gapped open to 278 7/8, rallied back to 288 1/2, and then sold off to a low of 260 before being bought back up to close at 270 1/4
ITWO gapped opened at 226 and hit 228 before selling off to a low of 199 and closing at 204 9/16
ETEK gapped down to 187 5/8 and quickly hit 180 before rallying back to 189 1/2 and then being hit by a wave of selling that took the stock down to 174 (twice) before closing at 179 7/8
AVA gapped down to 33 1/16 and sold off to a low of 28 11/16 before starting to be bought and finally closed at 31 1/2
HNCS gapped lower to 95 1/2, fought back to 100 1/4 and then sold off to a low of 85 and closed at 91 1/4
RIMM gapped lower to 66 and sold off the rest of the day to a low of 62 3/4 and closed at 63 1/2
AAPL opened at 108 3/16, quickly hit 110 7/8, and then sold off the rest of the day to a low of 100 5/8 and closed at 101 5/8
OCLI gapped down to 386 5/8, quickly sold to 375, rallied back briefly to 387, and then sold off to a low of 354 13/16 and closed at 360 15/16
CHKP opened at 243 15/32 and over the next hour rallied to 271 before being hit with selling pressure that tool it to a low of 228 1/2 and a close of 230
AFFX gapped open at 219 1/4 (hitting a low of 215) and then rallied to 235 before selling off along a winding path between 220 and 230 to close at 228 1/8
JDSU gapped lower to open at 208, was bought back up to about 210 1/2 and then sold off to a low of 192 5/8 before staging a rally in the last 15 minutes to close at 195 7/8
Trading channel trades can be simple and rewarding.
SDLI remained above its trading channel and gave no trade entry
ITWO bounced off its 228.5 upper trading channel giving aggressive traders an early short opportunity good for about 27 points. More conservative channel traders entered short at the breach of the 215.6 lower boundary for about 15 points profit.
ETEK remained below its trading channel all day and gave no good trade entry
AVA gapped below the 33.6 lower channel boundary triggering aggressive traders short for a 3-4 point gain - all other traders abandoned the channel trade
HNCS triggered aggressive traders initially short at the opening gap below 95.8 but were quickly stopped out for a 1 point loss. All traders were triggered short at the subsequent trading through of the 95.8 lower channel boundary for a 10 point gain
RIMM triggered traders short as the price action traded through the 64.8 lower boundary for a 1 point gain
AAPL failed to successfully breach its trading channel
OCLI triggered traders short upon the breach of the 383.2 lower boundary for a 7 point gain. After rallying back into its trading channel, it again fell through the lower boundary again triggering shorts for a 17 point gain.
CHKP initially triggered traders long at the breach of the 254.7 upper boundary for a 5-6 point gain and then triggered traders short upon breaching the 242.3 lower boundary for another 12 points gain.
AFFX triggered channel traders long upon breaching the 226 upper boundary for a 6 point gain
JDSU gapped well below the 210.4 lower boundary but subsequently triggered shorts when it rallied back to the bottom of its trading channel and again began selling off for a 15+ point profit
Envelope Patterns
JNJ was one of the few stocks to have a consistently up day - opening at 80 7/8 and rallying the whole day to a high of 85 3/6 and closing at 84 1/2
AT opened at 67 15/16 and sold down to 62, rallied briefly back to 64, sold back down to 62, and then rallied back to close at 64
INSO opened at 41 1/8 and sold down to 39 1/2, then quickly came back to 41 1/2, and then sold off along a winding path to a low of 37 1/2 and closed at 37 13/16
JNJ triggered long positions at the 83.4 upper boundary for 2 points profit
AT triggered traders short at the penetration of the 67.8 downward continuation boundary for a 4-5 point gain
INSO triggered aggressive traders short at the failed rally at the 41.5 boundary for 3 points profit. More conservative envelope traders waited for the breach of the 39.2 lower boundary and realized 1+ points profit.
Of note to index option traders - the OEX offered two potential entries on Friday. First, aggressive traders, seeing the index's failed attempt to rally back through SR3 (759.7), could have risked an entry with the Feb 760 puts and risked either 1 premium point or 760 whichever came first for an end of day profit of about 10 points. More conservative traders would have waited for a breakdown through the lower breakpoint (BP2=748.6) and entered with Feb 750 puts (risking 2 premium points or 760 whichever came first) for an end of day profit of about 4 points.
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).