By: Scott Redler
…Today Could be Tricky
Yesterday we saw a lot of follow-through on trades we put on earlier this week and between X-mas and New Year’s. My rule holds that you get involved on day one, as a stock breaks its resistance level with volume (either downtrend line, like GS on 12/30 or horizontal resistance. You get paid on day 2 of follow-through, typically selling at least half of the position. Then, on day 3, I basically move towards flat and start looking for a contra trade for a scalp. If there is a day 4-5, that’s usually when I put myself through a little pain.
GS is now up four days in a row, but is trading a little lower this morning. My strategy for today would be to see if they can push the stock through yesterday’s high of $176.26 and then watch the price action–i.e. if it goes to $177, the futures keep going, and I see a divergence in relative strength, then I start shorting a little bit. If the stock subsequently trades back below yesterday’s high, I add to the short, looking for a counter-trend move on an overbought stock. This is how a RedDog reversal setup plays out!
You can use this type of strategy on any stock, in any group, as long as it is extended to the up or downside–BUT, it’s a calculated trade–you NEED to watch price action closely for an entry.
The Rundown:
- The remainder of the banking sector just completed its second day up–they started later than Goldman (GS) and are playing some catch up!
- Casinos had two HUGE days–you can use the RedDog reversal strategy here as well. The easy part of the long move is now in the bag.
- BIDU has news–maybe it is used as a catalyst to get this stock back on the move to the upside.
- AMZN did a small 80-20 RedDog reversal yesterday–I am long now–the stock might break its mini downtrend, at which point I will add if I see volume around the $135.50 area.
- VMW had a nice day yesterday for us–it could push through new highs at $45.55 very soon.
- CAAS and CAGC worked great yesterday, but are now extended.
- RINO had its first potent day in a little bit and could be at new highs in the coming days.
- Gold is holding its gap from a few days back–watch that range (we are still long GLD with an average price of $107.50).
- Oil looks overbought–watch the number today for action.
- With the Consumer Electronics Show in Vegas, watch for some news and see if any stocks can make substantial moves.
