Here’s how you make the trade in McDermott (MDR).
Discussed in this article: McDermott International Inc. ( $MDR )
McDermott International ( NYSE:MDR ), I noticed that Jim Cramer’s been bullish on this company for a while. The company came out and lowered guidance today and the stock absolutely got puked like 10 percent in a day, which is like a really nasty sell-off. But this is what I think, you know I totally respect Jim’s fundamental analysis and if he’s saying that he thinks the worst is probably behind this company, he’s probably right.
So what do we do with this stock? Well the stock has just been ugly, it’s just really ugly, but we’re down at a tradable low here; yes I see this, well how much lower can this thing go, $7.00, maybe, but I want to talk to you real quick about this trade. I remember Larry Williams, he might have even written it in a book, but I interviewed him more than a decade ago and he said that he likes to be in phase with the trend, that’s his number one thing, but also the trade that he’ll look for is the one that nobody else wants; so he would look at a stock like this and he would buy it at the close. Why, because nobody else wants it then. You look at the way this stock was trading; it just kept going all the way into the close, on big volume.
By the way, why do you get that big volume, because sell orders that were being worked all day are finally being cleaned up, and so you’ll get some dumpage at the end of the day. So the point is, you look at a stock like McDermott ( NYSE:MDR ), you can buy it here for a bounce. I don’t know where the stock’s going from here, but let me explain the trade to you. First to all, the low here today was $7.01, but we’ll call it $7.00, so if you buy this stock right now, and buy just a little bit, you set your stop for about $6.95, Boom! You’re risking eight cents on this trade, and as long as the stock doesn’t trade down tomorrow morning, you’re going to make money on this snapback.
Now, alternatively, this stock could gap down in the morning, because people come home, they see what’s happening with McDermott ( NYSE:MDR ) and they say, “Oh my gosh, I’ve got to get out of this thing,” and so their selling pressure at the open pushes the stock even further down. At that point you start looking at the intraday chart, if the stock, notice I say if not when, because the stock could go to zero tomorrow, if the stock starts to turn around, that’s when you buy the stock and you set your stop just slightly below whatever intraday low you see tomorrow morning, within the first 15 or 20 minutes, probably the first 15 or 20 seconds of this stock opening up.
So again, if the stock opens quote, ‘up’ tomorrow, above $7.03, and starts moving higher, then you keep your stop a little bit below $7.00. If the stock instead opens down, stand aside, wait for it, wait for the stock to show you evidence in the morning that it’s going to turn around, and I bet it will, then you buy the stock and you keep your stop slightly below whatever that particular level has to be. I can’t explain it any better than that; let’s go make some money.