Near the final hour today, we initiated another trade in Inhibitex (INHX) as it started to pullback from the day’s highs on low volume, after breaking resistance levels earlier in the day. Our first trade was profitable, so let’s see if we can repeat the success here. $4.55-4.58 was proving to be a tough resistance level over the past few days and it was finally cracked today. While it would have been helpful to the longs to close above it, the low volume pullback with the A/D line uptrending created a bullish divergence giving good odds of more upside therefore a favorable risk/reward setup. Of course, nothing is guaranteed in the markets, but this is an odds based trade around the overall bullishness of the stock, the bullish divergence showing strong accumulation, and the position initiated near support levels giving us the ability to keep a tight stop loss. This effectively reduces risk yet provides significant upside potential.
With tomorrow’s Bernanke testimony and Friday’s much anticipated Fed meeting, I’ve been keeping positions smaller and reducing larger positions such as Exelixis (EXEL). The headline risk on what Bernanke could unexpectedly say could bring some bearish sentiments to the market rather quickly, so we must be prepared to protect to the downside if bearish behavior becomes the new trend.
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As always, do your own homework to see if you agree. Good luck out there.
Mike
At the time of publication, Kudrna was long EXEL and INHX but positions may change at any time.
