Webmethods (WEBM)
 Figure II. WEBM is one of our former earnings
plays that had a pretty good report. Now WEBM is a frequent micro trade and usually
by 9:50 usually reverses to fill the gap. It can also work the other way; WEBM would
move down after a morning gap up.
Buying
the First 30-Minute High
When there is a gap up or down, but the NASDAQ Futures
contracts settle into a trend, you might expect to enter the trade after a 30-minute
high. An important prerequisite to this type of trade is knowing the key support and
resistance areas of the the stock and whether or not it is in an uptrend before the
session opens. TECH, earnings play for past few quarters, was already in
"buy" zone before the trade below was made.
TECH was entered at a buy stop above the 30-minute
high. TECH was already a swing trade for most and a day trade for the more
conservative trader. In the chart below we can see the significance of the HIGHS OF
THE DAY in determining our profit targets. I would sell a partial position at the
high of the day after three strong rises on climactic volume which coincided with the
10:25 to 10:35 reversal period. Stocks can reverse by the next period - the
11:15-11:30 reversal period. It is your choice if you want to close the trade or
save some position for a possible end of the mid-day doldrums period at the
2:15-2:30 reversal period, or the late day period of 3:00 p.m. A hint at a possible late
day breakout would be the strength of the uptrend as TECH does not at any time violate the
20-period moving average.
In conclusion if you already in a stock
like TECH that is in an uptrend, you want to be aware
of intra-day highs. That is especially important when the stock is already in an uptrend
and 'pausing' during the afternoon doldrums. You want to be in the stock prepared
for a late day breakout once again. If you are NOT in the stock you might set your buy
stop to a point not at the HOD but at the point above the present consolidation level of
the stock.
Techne Corporation (TECH)
Figure
III. TECH
Highs of the Day as Profit Targets. In the TECH chart you can see
the HOD during the afternoon doldrums was a precursor to the HOD at the crucial late day
breakout by the 3:00 reversal period. The experienced trader would put in a buy stop above
the 5-bar consolidation in anticipation of a breakout. By the time TECH broke out,
the HOD was already a profit-taking opportunity.
Trendline
Breakouts as Intra-day Buy Triggers
The
10-minute chart below of MANU is of an "event driven" stock which we have traded
a number of times already
for mult-point gains both to the upside and downside. For example if you are long a
high-flying 'event driven' stock like MANU, you would NOT NEED to put in the stop below
the low of the last bar or the reversal bar or any bar. You could put in a stop at a set
percentage like 2 percent. For an 80 buck stock like MANU it could be $1.75 or $2.00.
Manugistics Group, Inc. (MANU)
| Figure IV. MANU, a break above a
downward trendline on the 10-minute chart can trigger a buy on a high-flying
"event driven" stock. MANU has been an earnings play for the last three
years, and up to now has been a solid company, that trends up before, during and
after its earnings report. Note also that stocks like MANU, with strong earnings
reports, are the first to rebound on NASDAQ Rally Days and move in a wide intra-day
trading range of up to 10 points in a single session. he Breakout from Doldrum Consolidation
Some of our strongest earnings plays, like JDSU, break out like an
explosion after a mid-day consolidation. Usually this breakout coincides with a rise in
the NASDAQ 100 Futures Contracts at around 1:50 to 2:00.
JDS Uniphase Corp (JDSU)
The
High of the Day
Highs of the day are not called in a vacuum. In the chart of VVTV
below you can see that the highs of the day were crucial in determining whether the
prevailing uptrend will continue.
VVTV is another case of a solidly uptrending earnings play that was a position trade at
the time of its earnings report. Any reversal after a small downtrend would would
have triggered a buy in a strong stock such as VVTV. The earnings report has
blown away expectations and the VVTV moved up consistently. After a buy on a bullish
Marubozu candlestick pattern, each new High of the Day confirms the strength of the
uptrend. During the afternoon consolidation, we might put in another buy stop above
the area of consolidation if we are no longer in the trade. In the chart below you can see
how easily VVTV has a breakout on climactic volume following consolidation. A second
HOD follows and VVTV is in an uptrend until the late day breakout of the 3:00 p.m.
reversal period. By the third or fourth HOD, you can take more profits and close the
position.
ValueVision International, Inc (VVTV)
Figure VI. VVTV, already in a strong uptrend makes higher
highs during the trading session. Consolidation leads to further HODs. You could have put
in a buy stop at the High of the Day at the 13:30 breakout but it would have been more
profitable to put in a buy stop above the 11:30 - 1:00 consolidation area
Opening Gap
Down and Reversal
When a stock is in a strong downtrend, which is at least three days long, and a bottom
is in sight, the last gap down can be an EXHAUSTION gap down, which is simply that the
stock is exhausting its downside and is close to a move up. The move up usually occurs in
the first reversal period 9:50 to 10:00. In the chart of SANM below, you can see
that opening gap down and the immediate reversal to the upside. This triggered a 9:50 high
and SANM was in an intra-day uptrend from then
Sanmina Corporation (SANM)
5-minute Chart  |
Even if the move up occurs at
9:30, it is recommended to wait until 9:50 at least because moves up that begin at the
open, EVEN AFTER GAP DOWNS, can reverse themselves by 9:50. It is best to miss a bit
of the move up if you are wrong than chance getting into a stock that is moving too early
and getting stopped out in 5 minutes with a loss. In the example below, CMVT gapped down
but moved up immediately until 9:45. By 9:50 it had a spike high and had begun its move to
the downside. This is not the time to scalp a stock because the risk is too high.
By waiting for the 10:00 high in this case you would have seen CMVT move into an
uptrend as it broke above the 200-period moving average.
The Stochastics, which were
dropping quickly had barely responded by the 9:30 reversal but by 10:00 the stochastics
broke out from an oversold pattern (see dotted line) and that reversal was confirmed
by +dx crossover. This means the directional movement indicator +DX, which is
the uptrend, had crossed over the -DX, the downtrend, and CMVT was beginning a weak but
obvious uptrend. Usually, when a stock gaps down, reverses immediately it will
continue to move in the direction of the early move so you might anticipate a return of
the uptrend buy. You SHOULD NOT ACT until 9:50 and preferably 10:00 on particularly
volatile days
Comverse Technology (CMVT)
15-minute Chart
The
Gap 'n Crap 'n Recovery
The chart of
NETE below
also illustrates that the early entry on this earnings play would have resulted in an
almost immediate pullback to the downside. This is probably
due to traders holding NETE in anticipation of a positive earnings report.
Ironically, because NETE did in fact have a good earnings report after the drop, it
reversed back up after a Narrow Range Bar by 12:05.
NETE subsequently began
moving up and triggered again after a period of consolidation coinciding with a reversal
to the upside of both the S&P 500 Futures contracts and the NASDAQ Futures. The
combination of the strong momentum from the earnings report and the improving market
internals, caused NETE to trend up for much of the remainder of the session
Netegrity
Inc (NETE)
5-minute Chart
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