A Tale of Two Pullbacks: $LO $INTU $study

-Both $LO and $INTU gapped up today. A common trade is to buy the pullback that inevitably occurs. This worked for $LO but clearly not for $INTU as shown in the charts. Both made clear pullback bases from which one can put a low risk stop, but one worked and the other failed.

-In fact $INTU made it back to the opening price which is very suspicious and probably indicates it has further to fall today.

Short Weak Acting Stocks. $akam $adtn $cree $study

If you are going to short a stock, choose one that shows  weakness during the course of the day. Below are the graphs of three I traded to the short side profitably today.

-What they all have in common is that they start exhibiting relative weakness from the start. On a strong up-trending day they kept making new intra day lows. So again and for my benefit SHORT WEAK ACTING STOCKS NOT THOSE THAT ARE ACTING WELL!.

The Story of Three Gaps. $SLB $GE $MCD ; $study

-SLB posted ok results friday pre-market. The stock gapped up over 2% but did not take out recent highs at 87.70...the opening drive high was 87.56 . The first fifteen minute candle was long and red and took the stock close to unchanged. This all hinted this stock was not going higher today. I waited for a bounce and shorted as shown in the chart.
-I should have shorted a little later, when the stock was falling rather than going up, and thus a clearer pattern established.
-Exit was poor, but I just was desperate to lock in some gains.

-Compare SLB with how GE, which also reported results, behaved. It opened up 4% clearly above recent highs; the first fifteen minute candle was green and never violated to the downside. So whereas the SLB opening hinted "I want to go down" , the opening in GE hinted "I want to go up" .

-Another interesting comparison is MCD which reported yesterday. Its fisrt two hours are almost an exact mirror image of what happened to SLB.
-MCD opened down, but had a nice initial green fifteen minute candle. It then reached unchanged; pulled back; and proceeded in the direction of the initial 15 minute candle.

The Opening Behaviour Gives Clues Again; Gap Direction and Initial 15 minute Range. $AAPL $GS $study

-I have blogged before about the importance of the opening level/behaviour. http://jpotrading.blogspot.com/2010/12/importance-of-opening-level-in-gaps-ccl.html

-Two days ago AAPL had what were apparently stellar results (again), and multiple upgrades. But it was only trading between up 0% and up 3% in pre-market...not impressive. Obviously the great results were competing with the opposing force of Steve Job´s medical leave.

-The stock opened at the pre-medical leave highs and quickly went down. This was a strong clue to the question of whether AAPL  was going up 5% due to results or down due to the medical leave.
- The pullback off the early lows was also instructive...its high coincided almost exactly with the previous day´s high...once this failed...

-GS had results that were not impressive, but far from dismal. It gapped down and the question was now what? It was range bound by the initial 15 minute candle , and one could trade this, but the "real trade" came with the brake of the opening 15 minute candle...and appropriatly the brake came in the direction of the initial gap down.

The Importance of the Opening Level in Gaps. $CCL $RCL $ADBE $WAG $study

I never leave a position open in a stock that will have an earnings release. That is gambling in my book. Once the earnings are out they offer excellent volatility, especially in a week where the indexes barely moved.

All three broke out after the earnings release, at which point you have to decide whether you will fade the move or not. Making your own assessment of an earnings report and what the market reaction should be is risky and difficult ; a better option is to wait for the market to tell you what to do.

I suggest using the opening level as a guide. If a stock is going to break out convincigly it must not re-visit its opening price for it shows lack of certitude on the part of the break out. Its like a 400 meter runner that starts strongly and opens a distance to the other runners and slowly sees it reduced as the race progresses. You might want to short these and go long those that start strong and never look back.

ADBE gapped up 6.2% to $31.00 and never really went anywhere.

WAG gapped up 7.9% at 39.75 and had an even cleaner break of the opening price than did ADBE.

RCL had a smaller gap up of  2.6% . It behaved differently than the previous two in that it re-tested the opening price and it held. The opening price became an important support.

What happened to RCL was even more interesting although it had no earnings release. It gapped up 3% and never looked back on its opening price, never giving a hint that it might be a good short despite its apparently exaggerated move. In fact you should be looking for support levels from which to go long in powerful moves like this that basically could not care less where the opening level was. Its the runner that starts strong and finishes strong.