Try this approach when the stock you bought isn’t cooperating with you. Let’s look at Expedia (E..
Discussed in this article: Expedia Inc. ( $EXPE )
I want to look at Expedia ( NASDAQ:EXPE ). What’s interesting about this stock is really just the last four trading days, so this is really just a little trading concept that we want to look at.
The company announced a disastrous second quarter; you can see what happened to the stock, it gapped down 15 points and just kept going. Probably the only folks who were buying on this day were the folks that were short from up here, and then the fools who thought they were getting a good deal. That would be the first day of the move.
This is a typical three-day rule of thumb, where the big move happens on the first day, you don’t want to be fading that move. The second day that big move often continues, but then finally on the third day of the big move it pretty much peters out and starts going the other way, right? Then you’d say, “Okay, well then this should start again.” So first day short, second day short, third day not going down anymore, first day long.
Well if only trading were that easy, unfortunately it’s not. So what do we have here? After the second day, after this low, what you’ve got is a line in the sand. You say, “Okay, well this is support.” Now, if the stock keeps going down on the third day, which it didn’t here. Well then you’re still not buying, because you want evidence that the stock is going to find support. You don’t just look at this and say, “Oh, the price must stop going down here.” No, we need to see it before we jump on it. So finally on the third day the stock gaps up just a little bit, not much at all, but then it moved higher all day.
The volume was definitely not stellar, not particularly impressive; it was higher than average volume, but less than the prior two days. It would have been nice to see more volume on this reversal, but still, we got the reversal. So at that point you have your support established and you can put a very tight stop right under here. That’s what you should have right now.
What’s your expectation on this trade? After such a horrendous quarter, and all this institutional distribution, and then only a one day move higher, before it pauses, you can’t expect much more. If you were buying a dead cat bounce, if you’re buying some big snap back, well guess what? That’s come and gone, that trade is over. So your oversold bounce that you bought has already bounced and this is all you got, just this one day. If you’re buying this now, anticipating this kind of move, welcome to the world of trading, you must be brand new. It’s not going to do that. This move has stalled out now.
So what do we do instead? Me, I’m staying away from it. This video is actually only for two types of traders; number one, if you’re considering buying this stock looking for more upside, perhaps ultimately you’re going to get more upside, but you just don’t have to be in a hurry to do it. The upside move is likely over. So if you’re expecting a snapper, it’s not going to happen.
Also, if you’re just looking to get in on a deal, if you really think the stock is over done, or maybe it’s fairly valued, now it’s time to get in. That’s fine; you can do that, but just make sure you adhere to the original stop, that would have been yesterday’s intraday low. You keep a tight stop below this and you’re good to go.
This is not my kind of trade, and I’ll show you why. Here, the weekly chart, I don’t like stocks that do this. If I see one big move down like this, okay fine, but I want to see the next move, the consequent move, the one that happens after that as a consequence of this, be to the upside; this is not that. So when you see this type of move just move on to stuff that you can make money on.
If you happen to buy this stock and you’re anticipating making money, maybe you’re up a little bit, but not that much, you know what? Don’t get fixated on it; don’t expect the stock to give you more than it wants to give you. The stock has given you what it wants to give you. Now do the expedient thing, I’m sorry, I couldn’t resist, get out of the trade and get into something that’s actually going to make you more money.