On December 9th, 2014, Spirit Airlines (SAVE) gapped down when their quarterly earnings report was released. SAVE had closed the day prior at $84.47 and had even reached an all-time high of $85.35 during this trading day.
It opened on December 9th at $77.59 which was a $6.88 gap down and then proceeded to sell off to $70.25 causing a bit of panic to any longs that were packed in this nice uptrend on the daily.
Anytime I see a stock selling off in a panic, I first take a look at the daily trend. As I reviewed SAVE’s, it had a nice uptrend and looked like a pure, shakeout play to the downside. So, I began the hunt to get long SAVE, but I needed some price confirmation to show me some buyers were willing to commit the trade.
On the two minute chart, it formed its first green bar. I knew that would be my signal to go long over the 2-minute green bar at $71.32, with my stop under the day’s low at $70.39. The difference between the stop and entry was only .93 cents, but the potential bounce could be a five to six dollar move.
From my entry at $71.32 the stock moved up nicely into $76.00 providing $4.38 gains, which was five times my risk of .93 cents. This trade was a golden setup.
Tip: Don’t be a hero trying to catch bottoms without trend support and buyer confirmation at the lows.
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