How to stay at the party until the booze runs out. (July 19, 2012)
BIDU
I’m Dan Fitzpatrick at StockMarketMentor.com on Thursday, July 17th plus two, which would make it the 19th. What happened on the 17th? Well, BIDU ( $Baidu.com, Inc. (ADR) ) printed what I call a long tailed cat; which just is a long tail on the bottom of a box. This is a reversal day; I was talking yesterday, I guess even the day before that, about how this type of long tail, particularly when it’s on high-volume, you’ve got to have high volume, signifies an intraday reversal, a key development; and that is, that the selling pressure, at some magical moment in time during the day, gave way to buying pressure and that selling pressure was a culmination, that give up, was a culmination of a big move lower, it wasn’t just a one-day wonder here. So that’s what we saw on Tuesday; that would be, if you’re keeping track of the three-day rule, which I call actually the three-day rule of thumb, that’s the smart money buys on the first day, that’s the real big money if it’s big enough to print an intraday reversal, smart money buys on the first day, semi smart money buys on the second day, finally, let’s just say that not so smart money buys on the third day. It’s not a rule like you have to sell on the third day, but it is a rule of thumb; it’s something that will just help you keep on the right side of the move, it’ll help keep you on the right side of the trade, because you’ll kind of get a better sense of the ebb and flow of the stock. Just a couple days ago the low was $99.00, now it’s $110.00, so it’s moved 10 percent from bottom to top, in less than three trading days. That’s a move that’s going to prompt some kind of profit taking. You’re going to get some folks that are going to be selling that stock; there’s also others that are going to be buying, ultimately, we don’t know whether this is going to continue moving up, or whether this pattern will reassert itself, and the down trend will continue. We just don’t know that and so what do we do? Well, if you took profits that’s great, it’s not a bad thing to do, but another way to stay long, as long as possible, pardon the pun, is keep track of the intraday lows; I mention this on a pretty regular basis because you know what? It works; as long as BIDU ( $Baidu.com, Inc. (ADR) ) continues to print higher intraday lows then you know that the stock is in the hands of the bulls. They’re buying any pullback and they’re buying it so aggressively that it’s not even getting back to the low from yesterday. So how do we trade this going forward? If you’re still long know that this pattern could very well reassert itself, we could get a big pull back tomorrow or we could keep moving higher. The way you can make that trade, you can stay in the game, is look at the intraday low of $107.28 there, you keep a stop just a little bit below that level and stay long; now that’s going to be a little problematic if you bought here on the day that the semi smart money or the not so smart money bought, because you don’t have any profits. Instead, you’re just trying to cap your losses, you’re trying to define your losses, but if you bought during this period of time, you’re going to at least have a profit to protect; that way you can stay long and any pullback in the stock that’s lower than today’s low of $107.28, any pullback will get you out of the stock with a minimum of damage. Yes, you’ve lost some of your profit, but at least you’ve made this good trade; you’ve got that under your belt and hopefully have some experience, along with a little extra money, and you can do it again, and again, and again. Okay members, over to the Strategy Session. Free Chart