Can you make money on a shot across the bow? Let’s look at Cigna (CI).
Discussed in this article: Cigna Corp ( $CI )
I want to look at Cigna ( NYSE:CI ). If you’ve been trading this stock you’ll see that this chart looks a little different. The reason is because it ends here on Friday the 20th, and this is why; I covered this stock in one of our weekend updates; if you just follow the “Three Day Rule,” which simply is, you’ve got to let three days go by before you really do anything.
Here’s the underlying reason; on a down turn the real smart money sells the first day. They’re the ones, the smart, hence big, that sells on the first day; that’s the one that starts the move; I guess you could say that would be on Wednesday.
On Thursday the semi-smart money sells, they see this stuff happening, they see the big volume and say, “You know what? I don’t know what the heck’s going on here, but I’m out of here, I don’t like this; love this part, this part not so much, so I’m out of here.” Then they go ahead and sell, and then basically, in these short-term gyrations of stocks there’s really no more selling pressure to come at this level, and then the stock lifts a little bit.
So my suggestion was, it’s a great opportunity to buy, it is a low risk opportunity to buy; because you can define your risk by keeping a pretty tight stop. So you buy here with this as your stop. Now, we look here and see what happened.
The stock is still looking okay, so you’d be okay on this trade. But let me just explain it a little bit more, or just kind of flush it out. You probably know what a shot across the bow is; that is my term for the first time a technical picture breaks down; you’ve got a really nice uptrend, and all of a sudden something bad happens, and then suddenly it gets back and everything is fine, and we just say, “That’s probably nothing, maybe somebody just had a fat finger and they sold too much, but the stock recovered.”
Well, then later, as it turns out the stock didn’t recover, that was just the first shot across the bow and a sign that we’re going to get more nastiness ahead. I’m not going to say that that’s what this was, but I will say this; I look at this as a trade now, just kind of a bounce trade. I’m not looking for $90.00, I’m not looking for a $100.00, shoot, I’d be happy with 81.00, and this is why; because when you see this kind of move, directional move, from 84.00 down to like 77.00 in three days, and you see big volume, that’s institutional activity.
Only institutional activity generates this kind of volume. And you say, “Well how do I know whether they were buying or selling?” Look, somebody was buying or somebody was selling, but who was the more aggressive institution? I would have to say it’s the seller. Why? Because the price is moving down so what I’m saying is, there is something wrong with this stock. Look at the others, the same thing. So Cigna ( NYSE:CI ) had been a really nice high-flyer moving out of a volatility squeeze.
Now, you’ve got to look at this as, yes it’s a trade, yes we could get a little bit more movement to the upside, but I don’t want you to just sit here and think that the uptrend is fine, that this didn’t even happen, it did. So look at this as a trade, as a short-term trade, not as marvelous buying opportunity so that you can get the stock before goes to $100.00. A great entry, but define the rest to the trade, and that is just a nice short-term trade.