“The hard trade is the right trade. Do the trade that is hard to do and that which the crowd finds objectionable. Be willing to change sides when market tells you.”
Going through days of churning and whipsawing action after the huge rally on Fed’s QE3 announcement two weeks ago, the market finally reversed sharply lower today from higher opening and from the first 90 minutes of rally. The S&P 500 closed down 15.3 points or 1.05% and Nasdaq was off 1.36% led by 2.5% loss in AAPL. About 23% stocks in U.S. market was up vs. 70% down. The volume is heavy. Today’s action truly shows how fragile this “bull” market is when a riot in Spain was reported along with some choppy/suspicious price action seen in many stocks recently.
This morning the market started with some negative news on the earning warnings from a few companies, such as CAT, DECK, RHT and TSLA, and they all opened lower and closed at their day lows. After gapping down and selling off yesterday from Last Friday’s bearish close, AAPL gapped down again in pre-market, but GOOG, with a better chart, gapped up 4 points higher after yesterday’s successful breakout from year 2007 historic high $747 area. A few lagging leaders like PCLN, AMZN, LKND and BIDU took off and tried to reach near their recent highs on the rotation play, but they were sold off hard following the sell off of the broad market. I got lucky to play long in PCLN which was a quick and nice trade.
But it was GOOG’s action this morning that got me interested since it reminded me of some stocks with blow-off tops I traded in the past.
Blow-off top: A sudden, rapid increase in a security’s price followed by an equally sudden, rapid decrease. It often happens a lot in the stocks with parabolic charts after many days of fast run up. A blow-off top can result in large short-term gain. Today’s GOOG’s action had all of the characteristics of a potential blow-off top when I mentioned about it this morning. When trading options on high-priced stocks, I like to look for fast moves in stocks with liquidity. AAPL, GOOG, BIDU and AMZN are usually my best candidates along with SPY. With HFT dominating trading nowadays, it requires us to be observant and acting fast to exploit big moves. Today after jumping up big this morning, GOOG stalled around 764 area where I entered my short. The market was cooperating well, giving me lots of confidence to manage my trades all the way.
Following some traders’ requests, here I attached my GOOG five-minute intraday chart and one-year daily chart with notes:
Thanks for viewing, and trade safe and well!