It’s been about four years since I’ve traded on Feb 29th. I don’t recall how I did 4 years ago, but today will be one I remember for a while.
Let me walk you through the set up on this gap that many in our trading room spotted on OCN. There were a few contenders for gaps this morning. UNFI, VRA, OCN and LL. VRA was the only bullish one we were looking to play.
OCN was a bearish retest gap. Why? It was a black candle the prior day and then gapped down. Those who shorted on the prior day will be buying to cover, causing the price action to pull back.
Why was OCN a nice gap to watch? Well, at open OCN was down about 15% or so. I look for gaps more than 4% and less than 20%. I am also looking for gaps that open past a pivot. Notice on the daily chart, the 2/25 and 2/26 candles both make higher highs and higher lows. Then on the morning of 2/29/16, OCN opens below a pivot point. {The price of $5.72}. This was likely the location bullish traders would have had set their stops, meaning the bulls were trapped on this gap down.
This was the set up this morning. We waited for the retest. EMA’s were bearish, taking the trade in the direction of the trend. 9:50 Eastern a white candle showed up. That was our signal. A break below that candle and a stop above its high was the play. Target 1 LOD {low of day} and target 2 was around the daily support of $4.62.
What to do from now? Well, if you look back at the daily chart, I am anticipating a retest of the 52-week low, around the $4.50 area, then one could expect to short that retest.
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