In my previous two posts I’ve discussed how it’s important for short-term intraday traders to focus on stocks with a fundamental News Catalyst and how your overall win rate will improve (here and here). In summary of those prior posts: by focusing on stocks with a fundamental News Catalyst behind them (e.g., an earnings announcement, FDA drug approval, government investigation, etc.), both the volatility and liquidity will increase immediately following that News Catalyst, which is what short-term traders want since the opportunities for profits are greater. It then comes down to your preparation and your ability to identify important levels and low risk setups in order to successfully exploit the short-term volatility.

With that in mind, I wanted to once again share some recent trades I’ve made to again illustrate the importance of stock selection, especially if you are a short-term trader. While I’ve made trades other than those listed below since my last post, for brevity’s sake (mildly) I’m just going to review trades made yesterday (8/12/15). I’m simply going to work my way down my AM Game Plan sheet from yesterday with the names that I traded, which you can see below as well (note, the sequence of stocks listed below is not indicative of the chronology of the trades themselves).

AM Game Plan (8/12/15)
AM Game Plan (8/12/15)

1) $SPY: I traded $SPY both long and short the other day. Following the PBOC’s decision to devalue their currency – the yuan – once again, overnight futures were gaping down yesterday for the second day in a row. Given that this was the second gap down in a row, I was hesitant playing the short side given the market environment we’ve been in since almost forever (although I made note on StockTwits that the very fact I was able to profitably short this gap down may actually be a sign of a change in character, see below). As you can see in the AM Game Plan sheet above, I was watching the pre-market lows as potential support, and below that I was watching the bottom of 2015’s trading range near $204.50. You can see I also had $207, $207.50-$207.80 as short-term resistance levels, which I used to short against on the open.

After catching the short (see first chart), I waited to see signs of a bottom to potentially catch an intraday bounce trade. I noticed that $SPY was breaking its intraday down trend and was also making a higher low. I decided to get long there with about a 40 cent stop below $205.30. I would consider this a more aggressive trade given the fact $SPY was still below VWAP intraday and was just starting to show signs of a bottom. A more conservative trade would have been getting long once $SPY made another higher low and then got back above and held above pre-market lows as well as intraday VWAP at $206.30 (this also could have been a spot to add to your position as well). I ended up scaling out on the way up into the resistance levels I had outlined for myself from the AM Game Plan and got flat above $209.

$SPY below pre-market lows. #Intraday

— Jake Huska (@MarketPicker) Aug. 12 at 10:14 AM

Hit those bids! $SPY — Jake Huska (@MarketPicker) Aug. 12 at 10:25 AM

A clear character change in this market was when shorting the open after a gap down works more than once… $SPY

— Jake Huska (@MarketPicker) Aug. 12 at 10:45 AM

I spy a higher low… $SPY #Intraday — Jake Huska (@MarketPicker) Aug. 12 at 11:00 AM

Sold 2/3 of $SPY long picked up below $206. #Intraday

— Jake Huska (@MarketPicker) Aug. 12 at 12:38 PM

$SPY $3 off morning lows, flirting w/ positive territory. #Intraday — Jake Huska (@MarketPicker) Aug. 12 at 02:55 PM

Flat $SPY long above $209. #Intraday

— Jake Huska (@MarketPicker) Aug. 12 at 03:36 PM

 

$SPY Short Trade (1min chart)
$SPY Short Trade (1min chart)
$SPY Long Trade (2min chart)
$SPY Long Trade (2min chart)

2) $BABA: The next stock I traded from the AM Game Plan was Alibaba, which had reported earnings before the open. The company beat slightly on earnings but missed on revenue; they also announced they would be increasing their buyback plan. Making new all-time lows, the stock initially dropped down to $69, which was $1 away from the IPO price, before bouncing up to $74. The stock then proceeded to trade in a pretty defined range pre-market between $72.50 and $74. I noted on StockTwits before the open that I had shorted some $BABA in front of that $74 resistance level, and that I would look to add to my short on a hold below the bottom of the range. I thought a move below $70 could definitely happen. You can see all of my trade management in the two charts below. 

Pre-market range in $BABA $72.50 (s), $74 (r): — Jake Huska (@MarketPicker) Aug. 12 at 08:41 AM

$BABA AM Game Plan: will watch premarket range.

— Jake Huska (@MarketPicker) Aug. 12 at 09:01 AM

btw, shorted small $BABA @ $73.80s. Looking to add after the open if below support. — Jake Huska (@MarketPicker) Aug. 12 at 09:09 AM

Added to $BABA short. #Intraday

— Jake Huska (@MarketPicker) Aug. 12 at 09:35 AM

Stopped on rest of $BABA short on break above $72.50. Took covers on the open. Flat. #Intraday — Jake Huska (@MarketPicker) Aug. 12 at 10:04 AM

After the pop above $73, $BABA how holding below that $72.50 level again. Would like to see it get below VWAP/ $72 level. #Intraday

— Jake Huska (@MarketPicker) Aug. 12 at 11:28 AM

 

$BABA First Short Trade (1min chart)
$BABA First Short Trade (1min chart)
$BABA Second Short Trade (5min)
$BABA Second Short Trade (5min)

3): $CREE: Another name that I traded from the AM Game Plan was Cree, which had reported a larger-than-expected loss and a lower-than-estimated revenue figure after the close the prior day; the company also gave in-line guidance. There was very little price reaction after-hours and even in the pre-market, as the volume was much lighter than I would have expected. This surprised me since $CREE has a history of having very extreme moves following earnings announcements, and given the poor results, I thought the stock would have been trading much lower than it was. I started pondering the notion that perhaps this news was already priced in and that institutions would decide to bid up the price. The stock was trading down at some important support at $24, which was the bottom of its daily range that had developed over the prior month (see chart below). Given the lack of volume in the post-market, I simply wanted to see what the stock did at this $24 inflection level to gauge institutional demand. As you can see in the second chart below, a buy program came in that caused the stock to pop over $1 to $24.50. After seeing the stock pull back and hold above VWAP and getting back above that inflection level, I got long at $24 with stops below VWAP and $24.70. I eventually sold 75% of my long position into $26, which I had outlined as resistance in my AM Game Plan. At the same time, I started focusing on $SPY intently and so put out an offer to sell the rest of my position at $26.85. Little did I know, the stock would trade up another point (literally 😉 ).

$CREE gap fill, now positive. $24 was inflection. #Intraday — Jake Huska (@MarketPicker) Aug. 12 at 09:54 AM

$CREE Daily Chart
$CREE Daily Chart
$CREE Trade Management (5min chart)
$CREE Trade Management (5min chart)

4): $AAPL: Apple has gotten a lot of attention by the financial media and financial Twitter lately due to the precipitous down move it’s experienced over the past week and a half (the stock is down 15% from highs). The selling was being attributed to worries that the recent decision by the PBOC to devalue the yuan would result in lower sales in China (due to a higher price in yuan terms). For some background, I had already played the bounce trade last week on Wednesday (8/5/15) via getting long the stock @ $112.10 (yes, marking that day’s low of the day 😉 ) as well by selling a put spread, which is a neutral to slightly bullish options strategy (note, I don’t consider myself an “options trader” per se, as it is on a rare occasion that I will trade options). I got flat my long stock position into $120 this past Monday (8/10/15) and also took off half of my options trade (which profits as long as $AAPL closes above $110, or even slightly below, by September expiration). In regards to today’s action, you can refer to the charts below with my trade management shown along with my AM Game Plan listed above.

$AAPL testing pre-market lows. #Intraday — Jake Huska (@MarketPicker) Aug. 12 at 09:36 AM

$AAPL trades below $110. This is clearly institutional selling.

— Jake Huska (@MarketPicker) Aug. 12 at 09:39 AM

$AAPL 4pts off flush lows. #Intraday — Jake Huska (@MarketPicker) Aug. 12 at 11:20 AM

Also, flat $AAPL long above $115. #Intraday

— Jake Huska (@MarketPicker) Aug. 12 at 03:39 PM

I hope that these trade reviews have highlighted the importance of stock selection as a short-term trader as well as how focusing on stocks with a fundamental News Catalyst can help increase not only your win rate but also your expectancy rate as well.

$AAPL long, $CREE long, $BABA short, $SPY long/short all outlined in game plan from the am:

— Jake Huska (@MarketPicker) Aug. 12 at 01:16 PM

Hopefully you found this post helpful. As always, please let me know if you have any questions or comments.

Jake

Trading with an Edge (Part 3) – $SPY $BABA $CREE $AAPL