The perfect reversal set up

I tried 2 scalps today, one off WB and one off AMR. The WB one was messed up from the start- I had to use a 1 minute candle because the Scottrade chart was messed up and I only clipped it for .11. I bailed when it failed to cross 3 only to see it take off later. Instead of chasing it I moved on. People are getting burned by banks left and right. However AMR looked like the perfect reversal set up- I posted about that here and here.  However I've been a little shy about playing these ever since I was so horrible at predicting the ABK bounce on the day it got crushed 80%. However AMR looked very good for several reasons. First, It was crossing back over 9 which gives it some new lift. But most importantly its cross over 9 represented its ADR support which I posted about here. With a high of 10.30 and low of 8.81 it had used up about 15% of its day range [10.30-8.81=1.49/10.16=15%] which is where this stock has been ranging (ADR5 ~ 12%; however it has had recent days of 15/16%). So the 9 cross looked really good. I also mention in one of those previous posts that this reversal pattern seems to hold up better in stocks over $7. Soon after it looked like I was wrong yet again- but no reason to sell unless it make new low below 8.81. Luckily the ADR support held and it took off. All I wanted was 9.30 but took it to 9.50's. Went to almost 10. Good play.

(Sep 30-11:07) johnnyvento: trying AMR off 9 bounce

Still in SIL, will probably close tomorrow, up over 3k

Thanks Daily Vento readers

Yesterday was my highest number of visitors since the inception of the blog. Hope you continue to find it interesting and maybe useful sometimes. If you have any questions or suggestions for blog posts please email me at johnnyvento@gmail.com. 

Will try to post something interesting next time to read...

Volatile banks

Bailout news could move some of these tomorrow. The whole list is a watch. Everybody saw what these can do on Friday with CCOW.

Sorted by highest ADR5.

watches Monday Sept. 29

IDEV WRSP GBRC LSCG THM

Just a few. As I mentioned in my previous post, don't ignore ones that have already gone red some- I still think there is a big down move left in WRSP and GBRC. Also, IDEV could still be a good long tomorrow on volume although I will probably wait for the short especially if it cracks early in the morning.  Also I 'm still in SIL and think it has one more day in it but will close if starts heading up. If you study the charts of WRSP POGS ZYXI you will see that 2-3 days is all you can expect on a major move but will stay in as long as it's red. I'm right on Muddy's and Sykes' tail with $1900 up on it so far. Right now they are both beating me ha. Would love to see under $2 on this one.

Dark Side trading: the stats

A quick analysis of 120 stocks on the darkside short blog shows what we've known all along: the picks are fantastic. An astounding 83% of the picks have dropped significantly within 2 days of the target date.  Only 7 stocks of my 120 sample (6%) failed to drop significantly after 5 days, and some of those even became tremendous shorts later on (see TUTR). Here is a sample of the analysis (target is the day of watch, +1 is next trading day etc). 

But the purpose of this post isn't to simply proclaim how great Muddy is, it is to analyze the data to uncover some patterns and improve my trading. What I have discovered from this quick study is that some of the best shorts are coming off stocks that are +2, in other words two days after they are considered prime candidates. Look at charts from IMMR and NOVS from recent days:

This makes sense of course because many keep running up but I have to admit that I can lose track of some from previous days, not the ones that are running still but the ones just lingering, I tend to ignore them.  This exercise has reminded me that I am missing some great opportunities. 

Also, don't ignore the ones that have already started to drop. I still view GBRC and CPSS to be great short candidates on Monday off red with much potential downside still in them. Those can be missed on the 8% gain and 15% 2 day gain filters, but will still be caught using 50% gain in 10 days or 100% gain in 20 days filters.

One thing I want to do is clarify some of the nomenclature that comes up with these kinds of plays. The 'red' and 'green' terminology that Muddy uses to describe prices that are above and below the previous close price don't apply when the stocks gap up huge, so I will use 'red on day' to describe stocks that have gapped but are breaking down, similar to shorts off of premarket leaders, no need to wait until it drops below the previous day close although that may still be a safer entry. I will use 'green on day' for stocks like RDN that gapped down but had a huge run up, no need to wait for 'green' on those. For an example of 'red on day' see IMMR chart above, red on day almost the entire day but still 'green' from previous day's close. For an example of 'green on day' see RDN from Friday. I alerted at 9:50 am on the huge bounce from the volume spike (see previous post).

Trading to your ability and risk tolerance

SIL has continued to be the gift that keeps on giving. I closed yesterday almost at its low figuring I could reshort it today. Luckily I was out on the way up this morning, I have difficulty holding when that happens even when I know it's going to come back down. Today I wasn't sure what would happen actually- I was all over the place thinking it could run again and thinking it would be a nice short off the spike up. 

(Sep 26-08:47) johnnyvento: SIL way up... may be green day

(Sep 26-09:04) johnnyvento: SIL might be a good reshort off the spike up

(Sep 26-09:04) johnnyvento: will have to see

Why am I telling you all this? Because once SIL settled down it was clear which was it was heading, and I jumped right in.

Here is the chart:

Classic Muddy style is to go in on break of $3. This was a good play but it broke so fast then retraced that I wasn't sure it wouldn't start to run. After seeing how FRE got dusted on DC rumors I flinched that any kind of bailout news (bad) could send stocks like these soaring. Letting it settle out made me more confident that SIL would still be a good short for at least another day. With more confidence I jump in with 1 1/2 positions to make up for the lower range I am getting so it works out. Plus I don't have to survive the heart attack of being on the wrong side of the trade. The point I am making is, if you are not sure of the trade, don't get in. Works for me. Could it work for you as well?

Also caught RDN early off the huge spike. 

(Sep 26-09:50) johnnyvento: RDN huge bounce

I'm not bragging, everyone in the chat watches RDN. I'm just saying to Avery Horton Jr. that it is useful to call them in the chat before they run up instead of after.

**UPDATE

By coincidence, Timothy Sykes has an almost identical post up tonight, although he doesn't really address the question of the entry, which is the most difficult aspect and what the letter writer asked for help on.  Although this trade on SIL is on a different day, the thinking is the same as my first entry at 3.89. 

update on Thursday watches

GBRC yup

UQM yup

WRSP ha, wanted more run up, got it

SIL said more down, understatement of the year

FRG yup

JSDA short yup

MNKD short candle, told you 

GBN boring now

VRML ha missed it, congrats to those in

DPDM will drop soon

HYDG told you to watch long, was up huge before drop

RFR scan streamlined

If you use the RFR scan (Run, Forrest, Run) from StockFetcher by Avery Horton Jr. then you know that most of us have a love hate relationship with it. We love the scan, and appreciate TRO's efforts (if you don't know what TRO stands for don't ask) but we wish it could be simplified sometimes. Here is a simpler version that 1- compresses down to 2 columns 4-9% and 10%+ gains; and 2- filters out the volcnt below 100% and therefore obviates the need for the volzero column. Here is the truncated code:

set{volcnt, count(volume above 50000, 100) }
set{volzero, count(volume equal 0, 100) }

set{x1, high - open} 
set{Long_Profit, x1/open } 

set{C1A, count(Long_Profit > .04 , 100)} 
set{C2A, count(Long_Profit > .09, 100)} 
set{C0010, C1A - C2A} 

set{D1A, count(Long_Profit > .09 , 100)} 
set{D1020, D1A} 

and add column daychg2
and add column C0010 {4_9} 
and add column D1020 {10+}

close is between 1 and 15
average volume(90) above 50000
average volume(10) above 250000

volcnt equal 100
offset is 0

sort column 6 descending

Use it in good health, or at your own risk, whichever is more appropriate. (Code modified by Brian, another amazing member of the chat.)

Watches Thurs Sept. 25

GBRC UQM SIL (more) WRSP FRG JSDA GBN (still watching)

Most have been mentioned in chat so no big surprises. Plenty of downside left in SIL in case you missed (but I don't think anyone did).

GBRC FRG love the price going up on lower volume. 

MNKD also a watch, red floater now but didn't put on primary list because the red candles been short lately... love to see you prove me wrong MNKD. 

Hoping WRSP runs up more.... be a shame if didn't.

Several others still on watch... VRML DPDM but not liking those illiquid ones lately... not moving nice i.e. stall or jump up and down like MKTY... SIL kind much better for me personally. But everybody has their own strategy to this game.

Also watch HYDG for possible long... could run tomorrow otherwise short on red if you like those sub-buckers. 

Thanks Muddy...

... for the incredible blog post, more than I deserve really. The more I learn your methods, the more I love them... and I love to contribute when I can. The pressure is on now! 

And because of your nice 'alert' to my blog, today received a record number of hits. Muddy readers, welcome! The chat is rocking now! 

More posts and updates coming soon, was hoping to get one up tonight but couldn't quite make it...  I need some more data from today and yesterday. I want to discuss timing of trades... especially the psychology of small trading volume...

The Five Minute Rule wins the day

I posted way back when about trading in the morning and how tricky it can be. Friday turned out to be a good lesson for that- or a hard one if money was involved. One thing that I think needs discussion is the psychology of the 5 minute chart. Looking at the open of WM, PMI, and RDN and seeing those huge white bars could make one think that they would keep going up...

However the 1 minute chart reveals the real story...

Although the 5 minute chart is useful most of the time, trading at the open and premarket leader drops requires the most precise timing. Switching to a 1 minute chart may help clarify what is happening in the stock and help you make better trading decisions.

Uh oh

As of right now I can't log into the chat. Can you guys try and leave me a comment? I guess I won't be trading with you tomorrow unless I can get it corrected. I hope I didn't get banned...

**UPDATE

looks ok for now

Watches Monday Sept. 22

WRSP MNKD NOVS SPF VNBC GBN HTM

WRSP gotta love it, ran huge in past, Friday almost straight up, possibly more to come. Could run huge again Monday, wouldn't be surprised.  Going to be an epic short either way.

NOVS haven't run the hard numbers but looking at the charts the last 4 days looks like one of the biggest percent gain in this stock's history... need I say more

MNKD you don't even need to look before 9/16... but if you do you'll see 8/7

SPF a TRO favorite... shows up in chat to talk about it even when it hasn't moved at all... this time it's relevant

VNBC big runup past few days.. no great insight, just think will fall

TRE/GBN/HTM huge bearish doji/hammer candles... big drops coming soon I believe... played TRE but will get back in Monday

HSWI still in, more down looks like

Black Candle Friday

The black candle is comparatively rare in candlestick charting. Used in multi-color charting, a black candle represents stocks that have closed lower than they opened (i.e. red) but still closed higher than yesterday's close, i.e. the price has still advanced. Friday had an extraordinary amount of black candles- here are a few just for starters:

RDN DSL TSFG FED FHN CRBC CORS STSA PMI VSE WM SFI SBKC 

And those are just the high day rangers. A strange mix of irrational exuberance and pessimism produced Black Candle Friday. I can only assume the pessimism will continue on Monday. I'm expecting a big red day.

WRSP epic day... and don't follow me on financials

Well I think today which everyone was excited about turned into a bloodbath for many people, including a few in the chat. Turned out some of the best plays were from the good old Muddy/13th style. Several nice ones from the watchlist including ANPI, AKNS, and HSWI (which I am still in) and I caught WRSP on its first spike up before 11am. 

(Sep 19-10:55) johnnyvento: WRSP huge spike up

(Sep 19-11:07) Reaper: WRSP was spike on news of deferring debt ... sort of like CHCI: http://biz.yahoo.com/bw/080919/20080919005111.html?.v=1

(Sep 19-12:30) johnnyvento: WRSP more up 36%

(Sep 19-13:54) Reaper: WRSP nhods 1.38

(Sep 19-13:54) Muddy: WRSP great job

(Sep 19-13:58) Muddy: WRSP geez

(Sep 19-14:03) Muddy: 1.50 WRSP

(Sep 19-14:03) Kris: WRSP 1.53 

(Sep 19-14:04) Muddy: on fire!

(Sep 19-14:08) Reaper: WRSP 1.75

(Sep 19-14:09) Muddy: holy cow

(Sep 19-14:09) johnnyvento: WRSP weeeeeeeeee

(Sep 19-14:09) Muddy: unreal call

That "huge spike" (arrow) looks like a blip compared to the rest of the chart. WRSP even though it faltered ended up finishing near the hod and up 101% on the day. Not bad.

Here is WRSP chart for your amusement:

My predictions on the financials were less than stellar. I was decent at calling RDN as a scalp but kept saying it would make new highs and it never did. And I was horrible at predicting a bounce on ABK, it crashed through any support it had using any method, it had its highest day range (80%) in over 2 years, if not ever, this is one for the record books.

New statistic needed

A commenter noted that the shorting on weakness trial didn't work in the face of a +400 Dow up day. That leads me to an idea that what I need is a statistic that correlates how a given stock moves with the market. Perhaps the advance/decline daily correlated with green or red would be enough. That will give me an indication of how independent a stock is. I've had the opinion that a lot of the ones I trade don't get influenced by overall market conditions but I need to turn this feeling into an actual number that I can reference. This will be a project to write the filter over the weekend. If anyone has an idea what would be a good indicator or how to write the code, please leave in comments.

Short on weakness trial #2 for Thursday

NT NCC SOV DYN CNO SIL AVF KOG KFN TRID

A watchlist for tomorrow. Although I like best the high dayrangers that are red on huge volume- this could be considered an inversion of the Muddy methods- these are 15% down in 2 days and down on huge volume increase, again just reversing the volume blast filter that Muddy uses. The nice thing about his methods is the ability to spin off different concepts- we'll see if any of this works.

*UPDATE

Ha I couldn't have been more wrong... should change the title to Long on weakness strategy... yeah that's it! 

CNO amazing! Missed it right under my nose

Update on Monday watches

Yup. 

VSE splat

Another great high volume panic short found today- does this chart look familiar?

(Sep 17-09:36) johnnyvento: VSE splat

Very similar to the high volume selloff of BQI that I caught last Wednesday. Hump day must be Panic Selloff day... anyway these are the kinds of plays I've been good at catching lately, this one was epic, down 73% on the day but if you subtract out the gap down it still dropped $2.2- an amazing 61%. I promised to find these kinds of plays that no one else seems to notice, CABeachBum also noticed it 8 min later either off my call or on his own, he's got good eyes that one, got the shout out from Muddy on the blog- better than me, I have yet to receive a shout out from Muddy. Maybe in time it will come. Until then I will keep trying to find good plays.

Looks like lots of people making good trades lately, congrats.

Penny stock worth watching

I don't play these that often but WYCT is definitely in play now- if it opens tomorrow on even higher volume than the previous two days then it could be a runner. Sometimes the third day up can dwarf the previous two as more people find the stock and get interested. (For example of epic third day charts and the original scan see this post.)

WYCT is clearly being hyped, and therefore is very dangerous and should be approached with adequate caution. If the volume isn't there and a strong open then forget it. It will turn into an fantastic short at that point. And this should go without saying, but since I don't know who is reading this blog then I will state it clearly- Do not play this stock without a day trade, or the ability to watch it continuously. 

Watch Monday but play at your own risk.

Watches for Monday

COIN/COINW/COINZ QCOR BBND CRXX

Of the COIN family, I like COINZ the best. It has the cleanest breakout and looks ripe for a fall. Also notice that the red candles have no top wicks- meaning when it goes red it tends to go downward on the day. Also the doji candle Friday may be forshadowing a down move.

QCOR has been on an amazing run and now has made new 52 highs. This is the same situation MITI was in and made for several good shorting opportunities. 

I called QCOR Thursday pretty early on the breakout:

(Sep 11-09:59) johnnyvento: QCOR up nice on vol spike 5.75

(Sep 11-10:00) johnnyvento: could run maybe

I haven't made a lot of calls in the chat recently. I feel no need to call stocks like RDN/ABK/PMI/FRE/WM that everyone is watching already. My role is to try and uncover great plays that no one else catches. I did this with BQI and QCOR in the past couple of days. Less quantity and more quality is my goal here.

BBND another one to watch close. It had an amazing run of 10 days up in April. However the recent 3 day run is actually a larger percentage move. Due for a down move soon. 

CRXX has been amazingly consistent in the $3-4 range. Shorting red on $4 seems to have been a winning strategy the past 6 months.

BQI spectacular

I'll write a separate post detailing the shorting into weakness experiment- but the results alone from BQI make me believe that this is a concept worth following, at least in the current market conditions. BQI from my short watch list posted last night:

(Sep 10-09:39) johnnyvento: BQI under 3, dropping

(Sep 10-09:40) GS: BQI-super nice fall

(Sep 10-09:49) johnnyvento: BQI vol 2.7's 

(Sep 10-10:02) FortunateSon: BQI under 2

(Sep 10-10:03) johnnyvento: BQI spectacular

(Sep 10-10:03) Androo: BQi crazy, good one JV

(Sep 10-10:03) Laura: BQI nuts

(Sep 10-10:04) Laura: yes, BQI good  catch JV

BQI hit a lod of 1.68 before bouncing all the way back to 3 again. 

Strategy, sign of the times, or contrarian indicator?

If there ever was a time to test the shorting into weakness strategy, it's now. Earlier, I indicated that BFRM might be a good short- that was based on the fact that the end of day selling looked panicked. BFRM went down some, but ended up rebounding so the eod sell there wasn't indicative of anything. In science we call that an n=1. For Wed. we will take a larger sample size:

ICO BQI IAR CPST RDN MTG ESLR LMC PBY

Of course this slightly larger sample size may still be only indicative of focalized market conditions. But let's look at the stats and set up a repeat experiment in the future.

Tests like these make me realize how difficult it is to come up with consistently winning strategies. I could spend 43 years trading before I come up with my own that work. Best use his.

Shorting from lower Bollinger Band

Awesome post from Muddy tonight, hopefully he will post some code that he uses, otherwise I will experiment with variations of SF scans that involve percent gains or days up from LBB, very nice insight from Muddy, hope there is much more to come!

watching PCYC close tomorrow, rode this one long a few months back for an awesome gain, hard to believe it's in the 2.50's, don't think that will last.

Prediction: PCYC will be a TIM alert...

Patience pays

In case you were thinking I was an expert trader who never makes mistakes, let me disabuse you of that notion.

Two days ago I was set to short URRE when my autotrigger got activated at 3.30, man I was stressed to see it go up to 3.68, I almost had a heart attack, but it dropped and eventually fell below 3.30.

Today I was set to short TGIC and had the short order forced in at 3.80. Since the open price was 2.80 I felt that this was no way close to being triggered. Well if you watched it you know that my price got triggered within 5 minutes- holy crap. But as fast as it rose it fell back again to below 3.80*, I felt stupid telling Muddy that my short price was 3.80, that is like failure. Someone shorted it from the hod. I think that is reckless, but nonetheless this trader nailed it and grabbed the most gain.

*Updated to fix prices

Simple stat but effective

4 day breakouts from 1 day ago: 121

5 day breakouts today: 18

That means 103 stocks (85%) went down after 4 days up.

Here is the code for 4 day breakout:

show stocks where price is above close from 1 day ago

and close 1 day ago is above close from 2 days ago

and close 2 days ago is above close from 3 days ago

and close 3 days ago is above close from 4 days ago

and price is between .3 and 10

There may be a more elegant way to program it, but that is what I figured out.

add a column for average day range and sort for the highest rangers. Then watch for red.

Updates

Short BPOP 9.20, we'll see how this goes. Has a tendency to gap down when it makes gains and it didn't hold $9 very well before.  BFRM disappointing today, not much movement. Will keep on watch. MITI trading like a normal stock now, will watch still, long biased here as opposed to most of the crowd. 

Tomorrow the list on darksidetrading looks outstanding, my favorites are COIN, WMAR, STSI. STSI is making new 52's and this is not a normal ideal shorting condition, will watch close but I think will still pull back some since it has run up so fast.

Shorting into weakness/watch for Tues

Although some of the best shorts come from breakdowns of artificially extended longs of the ZYXI/STXX/POGS/WRSP variety, in some circumstances some great shorts may be had from stocks that have already dropped sharp and will therefore be missed on scans that only look at percent gains. Of course these stocks could rebound but this is the same as waiting for the short from stocks that keep extending, in both cases the short is only good on red. My first test case (on the blog) is BFRM - already down big from $5, if you look at the intraday chart the stock dropped .60 in the last 15 min. on huge volume in what looks like a panic selloff and only appears to have been stopped by the closing bell. I'll watch close Tues for red and will probably jump on this at the open short, this one could break its 52 week low of 3.43 as early as tomorrow, if so there could be even more downside.