I had a request to write about the setups I look for and how I tackle them. I am in a timeframe when I am more long biased. I like the fact that when you go long the loss is limited to the investment you put into the market. The short squeezes that drove KBIO into the sky could easily cause anyone to lose the shirt on their back if they hold short overnight. That being said I stick to more of the long side unless it is a stock that I see moving within the ranges of the days.
For $LXU and $ENDP I found them in the same way. I found them by looking at the stocks with the biggest move down in the market for the day and looking at the chart. I typically try to play them for the initial morning reversal.
For $LXU I was in at 9.06 for initial reversal and then out at 9.25. It sold off a little and had held 9 fairly well so I added more when it dropped back down to the whole number. If you don’t see it already the round dollar and fifty cent marks tend to act as resistance and support as most people are looking to enter or exit around those numbers in their brain. So I went just below 9 as it was holding well. Then at lunch it started to sell off and continued down until close. I added again just before close for an average of 8.74 with the idea that this stock has come down $6 from $14 a 40% drop in 3 days and the shorts should close before end of day on Friday.
Most people that short stocks want to close out the short position before the end of trading day on Fridays. They want to close out the position because in shorting you borrow the stock from the brokerage house and have to usually pay a borrow fee each day you have the stock short. On Saturday and Sunday there isn’t really a benefit to borrowing the stock because there is not trading sessions. So typically on Friday’s you will see a stock that has been beaten down over the week to have a bounce up on Fridays before lunch.
That was exactly the case on $LXU today. I sold part of my position at 8.99 this morning thinking the 9.00 mark would pose resistance to the price movement. Well the next minute it spiked to 9.81. In that minute I went ahead and executed a market order to get out of the position in case it tanked down the rest of the day. In holding overnight for the gap up I have learned take the profit early. It could continue up, but it can also tank away all day again so as I say…..Carpe Profit!. Seize that moment in price action. All gains are never a reason to be upset. It’s a gain. Yes if I had held my full position to the high of day on LXU I would have been up $17,000 but I’m happy with my $4600 profit on the stock.
Another indicator I look at for the stock is looking at the RSI for the stock in both a daily chart with 1 min time frame or year chart with daily time frame. With the year chart with the stock below 30 it is a good indicator oversold for the macro vision of the year. Then I look more micro into the minute time frame to see the price action for below 30 or a dip below the Bollinger bands.
With $ENDP I have been in and out of this stock a couple times so far this year. This FORBES article from April 11 resonated with me about the stock and now when I see the RSI below 30 I usually capitalize on it.
As you can see by the chart above ENDP definitely looks oversold with an $RSI of 23.55 on the 1 year chart. The stock was down more than 40% of Thursday’s closing price all day. The low of the day was 15.50 and it opened at 17.40 from a closing price of 26.59. To me this is the rubber band effect. It has been overextended downward and shorts have tried to pummel it down as well as people selling their value investment. The shorts in my opinion will cover. The stock lost 40% of the value based on forward looking statements. For the past quarter they produced better than expected earnings per share however a negative forward looking statemen
I guess my rubber band reversal strategy comes from looking at a value stock seeing it on deep discount it makes me think of this quote from the Forbes Article….Legendary investor Warren Buffett advises to be fearful when others are greedy, and be greedy when others are fearful.
I like to look at the oversold stocks as opportunities. I am still working on perfecting my strategy and not going in emotionally. My entry on $ENDP is 16.15 average so going into the weekend I’m up .02 Yes!
Ending the week Green. Carpe Profits!! Now that the markets are closed on the weekend please take the time to study and research and enjoy time with friends and family. Don’t forget your mother on Sunday. It’s Mother’s Day!
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I have begun work on my special project to help inspire more women to trade. I never would have thought I would be here today with all these profits, but it is all possible with hard work and study.
This blog is for information purposes I am not a registered securities broker-dealer or an investment advisor. The information here is not intended as securities brokerage, investment or as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund.