Update April 3, 2107:
After eight days down in a row on the Dow, today’s bounce was nearly inevitable. Eight days in a row is a lot when four is most often the magic number to buy for a bounce.
And as inevitable, an oversold sector is likely to bounce with it. In this case, the financials – that is, the banks — GS, leader to the downside, as well as JPM, BAC, and even the deadest dog of the bunch, DB, which has some serious fundamental problems all its own (besides being the last lender to loan to Donald Trump).
Most likely this bounce will continue in a rise to resistance, most likely to bottom of the boxes indicated on the chart below at the point the stocks fell through support going into this recent decline.
If they turn over again with lower highs sometime soon…say, next week…that will not be good for any bull market going forward. In other words, head up the bull might actually be stumbling.
(right click on the chart for a clearer view)
When a hot IPO is launched, as was the case with Snapchat (SNAP) on March 2, the headlines are usually how much it leaped over it initial offer price. That is a worthless commentary. Unless one is on some broker’s favored clientele list, it is impossible to have the stock and to be able to sell it on that leap.
So what to do?
With IPOs this is actually one of the easiest decisions in stock trading. Simply note the high price and the low price on day one of the IPO. Those are the lines in the sand (see chart 0f SNAP below).
Buy on a close above the high of the first with a stop loss below the high of the first day. With SNAP that buy would have been at 27.09 on March 3 and it would have been stopped out the next trading at at 26.05, a loss of .3% (that’s the way it goes sometimes). From there, SNAP declined to an all-time low of 18.90 so that stop loss would have saved a lot of money, to say nothing of the anxiety of being locked into a foolish IPO buy made on whatever day.
It would have been a short sell below 23.50 if the stock could have been borrowed (difficult if not impossible this early in the IPO’s life). Regardless, today the stock is challenging its “First-Day Box” which would stop out any short sale.
So what to do now?
Basically nothing on the long side. Until it shows it can trade through its first day, it is not a buy. On the short side (easier to do now) it will be a short on the first down day below the box with the stop loss in the box.
In stock trading there are no easier decision to make than playing off an IPO’s First-day box.
P.S. when a long buy goes well it can become long-term hold as in the case of ACRS, a buy at 12.50 (see the chart below).
(right click on the chart for a better view)
Since market breadth turned down with conviction on March 3, the banks (like much of the general market) have been defying an impending decline. But that defiance appears to be over as they have been falling for the past few days, and that fall has accelerated.
GS is now down 6.7%, BAC 8.8% and JPM 4.7%.
GS, a bellwether stock, has how retraced its entire advance since early December. That is not a good sign for the continuation of this bull market, but will see how that weakness plays out in the fullness of time.
(right click on chart for a larger view)
…it is almost scary.
But it is what it is. I guess the Fed came to save the day…with higher interest rates no less.
With a low above a low on the NYMO after five weeks of highs below highs, it appears bears have one more day (tomorrow) to make their presence felt but after that, if the NYSI up, it will be rocket time again. In other words, new highs across the board someday soon (tomorrow, Friday, next week) and probably then some more…
Also, a nice little divergence there on my nifty-50 stock list from 42 sells in February to 38 four days ago (there are 39 on buys now). Last time had a similar divergence was at the bottom in November.
(right click on chart for a larger view)
Best day trading rally ever?
On TQQQ, the 3x-leveraged ETF for the Nasdaq, 15 percent year to date ($15k total trading $100k on each trade), with 75 percent of the trades profitable. No overnight risk.
(click on the chart for a larger view)