15 replies to this topic

[Rogerdodger]

We don't get too many 300 point days like Thursday. Lot's of longs sold the gap up. I sold part, looking for a gap fill to re-buy. I "locked in" some profit from early Wednesday but it cost me 1/2 of Thursday's move. I've tried trailing stops when I can't watch the market, but if they are too tight, you get taken out quickly. Too loose and you give up much of your profit. On the flip side, many were caught short on the gap up. But they still could have made money by reversing and going long. I've been there before. I usually only cover and kick myself for not going long. But who wants to go long when the S&P is already up 10 points that early in the day? So do you have any rules or suggestions on dealing with such gaps? I used to subscribe to Pristine.com. Seems like they had a 30 minute rule when caught on the wrong side. As I remember, they said that often the low or high for the day would be made in the first 30 minutes so they would place a sell stop at that low. Do you have any rules to deal with such gaps, whether they go against you or with you?

Edited by Rogerdodger, 14 July 2007 - 05:49 PM.

[Rogerdodger]

Here's Pristine's 30 Minute gap rule mentioned above: PDF LINK

"When a stock gaps up excessively, it is usually the seller who is the smart one. This is why many stocks that gap up tend to pull back rather sharply after the first 10 to 20 minutes of trading. Once the
abundant pre-market buy orders have all been satisfied, the demand is gone, and the stock
tends to give way to "professional" selling.
But there is an exception, and it is this exception
that sets the stage for one of our most powerful trading tactics. Our studies have shown that if
a stock that has gapped up is able to trade to a new daily high after 30 minutes of trading, the
strength demonstrated at the open was not artificial, but real. The strength in this case is real
because it's being confirmed by continued buying after the early a.m. rush (the first 20 minutes
or so of trading). This one simple discovery encouraged us to design a simple yet powerful
way for the Pristine Trader to capitalize on the stocks that are truly strong. It's called Pristine's
30-Minute Gap Buy Rule. Here's how it works.
The Set-up
The stock must gap up at the open by 1/2 or more. In most cases, a gap up much greater than
$1 will be news related (positive earnings, brokerage upgrade, etc.), which is fine. It is best if
the stock gaps open above the previous day's high.
The Strategy
Once the stock has gapped open, the trader must let it trade for a full 30 minutes. No action
other than watching the stock is required during this time. Often the trader will be watching and
monitoring several stocks that have met the above set-up criteria.
After 30 minutes, the trader sets an alert 1/16 above the high of the day, which in many cases
will not be too far away from the current price."

Edited by Rogerdodger, 14 July 2007 - 06:39 PM.

[arbman]

Edit: I just saw your second post, although I agree with it, I saw several times a secondary retest of the gap highs and then drift lower. Thursday afternoon was wild, it looked like it was giving up, only to accelerate very suddenly. Perhaps the intraday volume patterns could explain it... the comment on the image was meant to read as "lower volume rally toward the higher levels (bearish)"...

There is no way that somebody could predict the Thursday afternoon on an intraday basis, you must have a longer term trade target to hold on to your position to catch them, imho.

So, your trading horizon should've included a potential upmove for Friday for a total of 20-25 points --that all came on Thursday afternoon instead-- and hold on to your trade with the stop just below the gap by risking some of your gains for Thursday.

A better move could be to take partial profits where you feel very comfortable and risk the remaining of the profits around break even, then you can either risk all of your gains by increasing your line at the pull back as long as you are not stopped out or simply sit tight for the remaining...

Personally, I expected the gap up to be the extent of the move and a more or less flat Friday and then most likely down into the next week (similar to last Nov top). Right now though, if the lows come in early in the week, the expiration will be at the traditional top closing tick, but the gains should be less than this week.

I am thinking gap down rally to the gap and then lower first on Monday on a volatile fashion, flat on Tuesday and then higher again on Wed and Thursday, down or flat on Friday and then down next week harder and higher into August...

I am thinking 20 points lower on Monday for NDX and then another 40-45 points upside later in the week. It should retrace the entire 60 points the following week unless a tremendous volume emerges this week, unlikely. The first pull back next week should be undoubtedly bought, imho. That should be the entent of this rally and we should not see these prices for the following 2 weeks at least or longer depending on how aggressively people take profits...

- kisa

Edited by kisacik, 14 July 2007 - 06:45 PM.

[Rogerdodger]

A better move could be to take partial profits where you feel very comfortable and risk the remaining of the profits around break even, then you can either risk all of your gains by increasing your line at the pull back as long as you are not stopped out or simply sit tight for the remaining...
Personally, I expected the gap up to be the extent of the move

I like taking partial profits and did.
I'm still partially long, but you know, greed has me thinking twice...

A 300 point day is a rare event (although some were expecting the "slingshot" move).

Edited by Rogerdodger, 14 July 2007 - 07:07 PM.

[arbman]

The pattern on Thursday pretty much developed similar to Wednesday, actually. The volume on Wednesday afternoon was very heavy and it was saying that somebody was accumulating that very sudden reversal. BTW, look at the closing volume on Friday, huge volumes there and the prices were getting stalled (or exactly the opposite of Wed)...

Edited by kisacik, 14 July 2007 - 06:50 PM.

[Rogerdodger]

I guess what really hacks me off is that I was watching that little pullback the last hour Thursday. A trader could have bought that and done better than most days! But I was so busy with other business, I decided not to take the trade.

Edited by Rogerdodger, 14 July 2007 - 06:51 PM.

[arbman]

I was at the dentist and watching on my cell phone and thinking a long on Wed afternoon could make my month on NDX. I could not trade on Wed afternoon either, busy with a new hire in the company --I'll tell ya, sad but he would not appreciate what I was missing for him...

[SemiBizz]

http://bigcharts.mar...&mocktick=1.gif



One of the things I look at is volume spikes intraday. When you have a volume spike it's either going to act as support or resistance. If you look closely you see the first one early in the trading day on Thursday. There was a test of that low that still came on some pretty strong volume but passed. Then the next spike came shortly before 2PM. Then you see some light volume testing of the low of the spike on progressively lighter volume. Shortly before 3 PM you see another volume spike and a pattern of quality of volume on the way up. I am using the QQQQ here because volume is available, but Nasdaq closely tracked it as well. For me it was a simple exercise in pattern recognition.

Here's what I posted in my blog around that time...
2:50 ET - In fact the way we keep banging against the highs, looks to me like they could just ramp it right on up to 2700.
2:55 ET - The SOX after lagging yesterday and this morning has turned around and outscored nasdaq 2.2% to 1.3%...This is a slippery area for the SOX we're probably going to see 531
We closed at 2701 and 530.99 on the SOX....

About the only negative here was the sell spike right at the end of the day on Friday... which leaves an impression of weakness for the open on Monday...

Edited by SemiBizz, 14 July 2007 - 07:25 PM.

[VolPivots]

http://bigcharts.marketwatch.com/charts/big.chart?symb=qqqq&compidx=aaaaa:0&ma=0&maval=9&uf=0&lf=1&lf2=2&lf3=4&type=4&size=2&state=15&sid=2666326&style=320&time=2&freq=6&comp=NO_SYMBOL_CHOSEN&nosettings=1&rand=1638&mocktick=1.gif
About the only negative here was the sell spike right at the end of the day on Friday... which leaves an impression of weakness for the open on Monday...

SB...not sure how you'd read it, but here's a chart of the SPX e-minis with bid/ask and total volume...1555 +/- looks important for the bulls.

[SemiBizz]

Well, what happened on the first volume spike is that the resistance was gapped over, and that is not cool. However, on the other hand, the entire move is a bearish upthrust(at least on all the cash indices) than can continue with the uptrend. I guess the important thing to know is that if you do see momentum carry us under the low of the second volume spike then it wants to go back and test that gap and ultimately the first spike low... Now if you don't see momentum and just a light volume test of the 2nd volume spike then we could have a bullish spring back up off the 2nd spike with no further downside testing. I believe that gap will get tested though ultimately... So, if you see indecision in here somewhere (doji) then see a couple of these candle lows broken on improved volume expect #2 spike test, then #1. The price area between these two volume spikes is where this thing wants to trade, in it's present configuration. I'd need to see more history to conclude anything beyond testing these 2 spikes....