How do you trade a recent IPO as if it were a more mature stock? Shift your timeframe. Here’s m..
Discussed in this article: Quintiles Transnational Holdings ( $Q )
We’re looking at six candles of Quintiles Transnational ( $Q Quintiles Transnational Holdings Inc ). The company just went public back here on the ninth and you’re wondering, how do I trade this thing? Well it sure looks like a buy doesn’t it? But we don’t have much to go on, so here’s what you want to do when you’re looking at these IPO’s.
You want to look at the daily chart, that’s fine, weekly chart doesn’t really help you too much. So the daily chart is really all you have to go on, right? Well not so much. If we zoom in all we’re really looking for is more periods here. We only have six periods because we’re looking at a day chart.
All right, if we look at a 15-minute chart guess what? We have a lot more. Now all of a sudden this makes sense. Volume, this stock is not that heavily traded and you’ll see these green spikes. When did they come into play? First thing in the morning, here, first thing in the morning, here, first thing in the morning, back here, not so much, here, late in the day. You can see we get most of the volume at first thing in the morning and all of a sudden this chart makes sense, doesn’t it? You can see how, as the stock trends higher, it pops up in the morning, and then trades sideways pops up in the morning, then trade sideways, pops up in the morning, ultimately ends kind of flat. I mean okay it traded up a little bit, well guess what? Nothing’s perfect. Here, stock opened up, traded up very quickly, and then drifted a bit lower during the day, but a lot of stocks were doing that, so the pattern is very clear.
So what do we do with this? What are you going to do with this pattern? Well, what you want to do, frankly is be buying this at the end of the day. You want to be buying this near the end of the day and then as long as this pattern holds true you’re good to go. Now with that said this is still in the early stages of what I would call feeding frenzy time, where the stock is just moving up, everybody’s winner, it hasn’t rested hardly at all. So we could see the stock peak out just a bit in the short-term, so I want to be careful of it.
One reference that you can use, I’ve talked about this before, I definitely talk about it a lot in the Stock Market Mentor premium section; that is using the intraday lows as a reference for selling and buying stocks. Now I’m talking about this as a trade. If you’re in a longer-term position this is silly, you’re going to get shaken out every fifth or sixth day. Here you’ll see that the intraday low marked the low in the stock and ever since then, each day the bulls, the buyers, have been more persistent than in the past. They’ve been so persistent and wanting to buy that the stock has never made a lower intraday low.
So what is our mark for today? Our mark for today is 45.60. As long as Quintiles ( $Q Quintiles Transnational Holdings Inc ) does not trade below 45.60 then this pattern remains intact. It can be a little bit worrisome if you’re really committed to this stock because the stock gapped up and then closed down, it had a lower close verses the open; that’s the first time it’s done that since the opening day of trading, which is typically what stocks do then; which is why you’re not supposed to short them.
This is what you want to do, again, just watch the low; you can enter this stock now with a very tight stop. If the stock falls below 45.60 that’s, twenty-five cents from where it closed, then this is a trade that’s going to work. Enter lightly; don’t pile in all at once, because that pattern of gapping up and trading sideways will end. At one point it may gap up and just get crushed or it may gap down and start falling, so I want you to be careful.
This is a pretty safe way to make short-term trades because you totally define your risk before you even enter the trade. Keep your stop right about there; if the stock falls down to it you get stopped out for a small loss, too bad, so sad. If the stock keeps running you’ve got a pretty good entry with a very, very easily defined risk.