Let’s take a look at the three “snapback” stocks I recently covered. Gamestop (GME), Nordstrom (JWN) and Mentor Graphics (MENT). (December 02, 2015)
I want to take a walk down memory lane with GameStop ( NYSE:GME ), Mentor ( NASDAQ:MENT ), and Nordstrom ( NYSE:JWN ). If you’ve been on this Chart of the Day video email list for a while then you know that I was talking about these, what I call, “slam plays;” you can call them whatever you want. I was talking about buying GameStop ( NYSE:GME ), we talked about this in the forum on this day. You buy this stock when it snaps down after earnings and then keep a stop just below that level. But don’t expect this, you have to just “ride the horse” knowing that’s is going to take you so far. We went through this in a Chart of the Day video. This type of thing, where you’re buying it in the day there, and then at some point you want to be selling, because there was a reason why this stock gapped down so far. And with all these folks that bought up here, “They’re all losing money.”
So the closer the stock comes to where they were losing money. The closer that stock comes to that point where they’re going to say, “You know what? Get me out of this thing. If I could just get my money back I promise I’ll never ever trade again.” And then the stock starts drifting down. So you take this for what it is. We looked at Nordstrom ( NYSE:JWN ) as well. For the same type of deal. You get massive selloff, look how far below the 50 and the 200-day moving average this was. It could almost not help itself. It had to trade higher, unless they were going to do away with the men’s half yearly sale, in which case I would never have any clothes. Trust me, that’s not a good thing. So anyway, this was another thing where the stock gaps down, you buy this. Once you see that there’s kind of support there, you put your stop just a little bit below support, you ride this thing up. Here’s a little tip, as soon as the stock ceases to print higher INTRADAY lows, that’s when you want to start looking for the exits.
You can see, if we just look at that principle (I’m giving you pearls here so pay attention), I didn’t make this stuff up, it’s just the way stocks trade. Also, Larry Williams told me this one time. But you look at this, there’s the low, higher low. “Oh my gosh! Red box, I’ve got to get out of this stock.” No, higher low versus that one. Then the next day, higher low. “Oh a ‘doji’! Oh, I’ve got to get out now”! Not so fast. Higher low. And then this one. “Oh my gosh! Look at this! This is actually at ‘tombstone doji’, if only this was a little bit higher here. So I’ve got to get out.” Well no, higher low. Okay, well this, this is the first lower low. You’ve got to get out. Well maybe, but it did close higher, didn’t it? You just start to look for the exits. So you say, “I think I’m going to have a little trailing stop right around here.” By the way, higher low, higher low still, finally, here’s a lower low. So now we’ve got these two “spinning tops” in a row, right here. Now, we’re looking for the exits and then we get our exit, right here.
Now, Nordstrom ( NYSE:JWN ) could trade up at $65.00 and you’ll say, “Shoot, that was stupid for me to sell the stock,” No, because that was not your trade. Your trade was buying a deeply oversold stock, riding it up until the STOCK tells you that it’s time to exit. So you’re buying the stock, shoot, buy it in the middle of the day at $52.00, you want to be sure. Then you sell it up here at $57.00 or so, 56.61. Do that again every day or every week or two, that’s good money. Then the last one, Mentor ( NASDAQ:MENT ). The same type of thing here. The stock trades down, gaps down on really bad earnings. “Oh, well Dan shoot, if I had bought the stock here I would have lost my ‘asterisks’.” Yes, but I’m not saying you buy the stock at the open when it gaps. I’m saying you buy the stock when it’s showing evidence that somebody else is buying it before you. We didn’t see that here. So here, the following day, you see this, “Oh it’s a reversal, I’m going to buy this stock right here.” Okay, you can buy that stock, just don’t ask too much of it. The stock didn’t even get back to this high before it started selling off.
Again, I kind of doubt that the stock is going to go to new lows. But would you want to buy it? No! And by the way, note the intraday lows. Higher low, higher low, higher low still. Now we get a lower low, actually a lower high as well. So these are just different stocks. There are different ways that you can look at them, but it’s the same trade. And that is, trading an oversold bounce. Trading a rubber band that’s stretched so far that it HAS to come back. Here, that rubber band wasn’t too tight. Nordstrom ( NYSE:JWN ), a little bit tighter. GameStop ( NYSE:GME ), a lot tighter.
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