Dead Cat Bounce vs. Butterfly Doji? The bulls won. (February 05, 2015)
Lets look at Stratasys ( NASDAQ:SSYS ). I featured this; I think this day in this Free Chart video series, mentioning that this was a dragonfly doji versus a hammer or whatever it was.
The point was that this stock was really, really oversold on some abysmal earnings. And so it was actually setting up an oversold bounce; a dead cat bounce versus a dragonfly doji was what I was talking about, and you didn’t really get a dead cat bounce here. A dead cat bounce would have been this, an open down here basically then just a move up, closing here, something like that. That’s really a dead cat bounce, which was why I had said dragonfly doji, which is what this is.
My point is here’s how you trade these. Once you see this, and I’m not talking about the day of, that’s fine, that’s a whole different deal. Here the high was 57.75, so you see this and then you go ahead set a price alert, or you just watch it, whatever works for you, of 57.75 and then when the stock moves above that level you’re notified and you can decide when to buy.
Now perhaps you buy here, which you certainly could do, you definitely wouldn’t be selling this though. Lets say you were upside down in it and then you see that you’re getting killed here, you’re losing a bunch of money, you want to sell in to this strength. No, because it’s giving you a higher low, a higher high, the stocks kind of opened and closed right in the middle of the daily trading range but it’s still showing some positive moves.
Then today, you get a big move today, a big move. So even now if you’re entering here at 57.75 you’re not up a huge amount unless you call 8 percent in two days a huge amount. The idea is you can be making money on these oversold bounces and you don’t have to make it on the first day. You wait for the conditions to be satisfied and then you enter the trade, or at least you consider entering the trade.
They’re not all like this though, remember UPS ( NYSE:UPS )? A similar sell off, the pattern was completely different here. Note that the stock closed at the low end of the range on that first day as opposed to Stratasys ( NASDAQ:SSYS ), which closed near the high end of the range. So what this showed on the low end of the range was almost like the only reason the stock wasn’t lower was because the closing bell rang, and so it continued down for several days.
So now what do you do? Well it’s a different pattern because it’s not completely sold off, but I would say if the stock regains the 200-day moving average, then maybe it moves a little bit higher. But that’s not really the point of this video; the reason I’m mentioning this is because here was a big gap down, it didn’t work to buy on the second day. Here is a big gap down and it actually did work, really, really well to buy on the second day.
So two stocks, two different trades. By the way, Bridget, my trading assistant, I was talking to her today and she was saying, “3D ( NYSE:DDD ), for whatever reason, I just want to buy that thing, it just looks like it’s going up.” I kind of feel the same way but it’s tough to objectify it, it’s tough to say exactly why, because the trend is down, lower lows, lower highs, the 50-day moving down, the 200-day moving down.
But you look at this in relation to Stratasys ( NASDAQ:SSYS ), this had the big tank here on February 3rd; so this is what this looked like on February 3rd. Well what happened? The stock gaps down I’m sure in response to Stratasys ( NASDAQ:SSYS ) earnings. It gaps down 7 percent and then ultimately closes higher on the day, relative to the open. You look at this and this to me looks like bad earnings are already baked in to this thing. Short interest, I think there’s like 30 percent of the float short.
So if you’re looking for a potential stock, like it’s just kind of a little gamble or whatever, to hold over earnings because I don’t like holding over earnings, you look at 3D ( NYSE:DDD ), this could be the one. So that’s your analysis for Stratasys ( NASDAQ:SSYS ) and then something to consider on 3D ( NYSE:DDD ); I think they announce earning in a couple of weeks. Anyway, keep an eye on these.
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