Here’s your trade for Monday! Check out this setup on Netease (NTES). (August 10, 2018)
NTES STMP
In this Free Chart Video I what to look at NetEase ( NASDAQ: NTES ) because, hopefully, you are going to get something for nothing here.
For three days NetEase ( NASDAQ: NTES ) sold off hard. Back here on Tuesday, everything looked fine; holding above the 50-day moving average; and then, come earnings, Boom!, right here. The stock had sold off here on Wednesday, that is the first day of selling and this was actually kind of a high volume day as of that time. And then the next day, the second day, is when you really got the selling. The smart guys were getting out here; the semi-smart guy was really dumping the snot out of this thing here. And then finally, on Friday, this stock climaxed here right down around $220.00; right? This was the low, 218.22
So if we look here, at the intraday chart, you will see the setup for next week. You get the sell-off here on the 8th, that’s on Wednesday. Then the gap down and continued selling on Thursday and then finally a little kind of a gap up, “Oh, maybe that’s the bottom! No, it’s not; and then the stock trades down here.” And then finally, at 10:45 or so, after the first hour of trading is over, the stock finally finds some support and now it is up a bit.
Here is why I like this trade: Let’s say the stock was to open up here at 225.00; you have got about a 3 percent stop on this trade. The reason for buying this stock is because you believe that this is the low right here. You believe that the stock is not going to go below this level. So your thesis is, if the stock falls down to this level there is going to be buyers that are going to come in to take it. So how do I know if I am wrong and I want to be out of this trade? Easy, the stock falls below 218.00. So you have got a pretty tight stop set here and you are buying the stock, looking for a rebound, maybe at 240.00, seriously, that would be kind of my upper target.
Now another way that you could do it, and it totally depends on how the stock is trading on Monday, is rather than use this as a reference for your stop, you could instead use the open price here, which is 226.00; right? You could use this open at 226.00 as your reference. But then if you are going to that then you also need to kind of look at the prior days, on Thursday’s; this low, stocks do kind of trade this way. So if you don’t want to set your stop clear down here you can be setting a super tight one instead and keep it right around here.
Either way, what you are counting on is the old Three-Day Rule of Thumb coming through. The big money sells on the first day, that’s the smart money. The semi-smart smart money figures out what is going on and they are selling here, usually in the morning. And then finally on the third day, at about 10:40, the “Last of the Mohicans” sell, they can’t take the pain anymore. They were in at 260.00; now it is at 220.00, “I have got to get out of here before I lose all my money.” They sell right here and now we are looking for a rebound simply because all of the supply, all the suckers have kind of been cleared out here; the idea is that the stock starts to move up here.
This is your trade for Monday: If the stock moves above 226.00 I think it is a buy. Specifically, 226.05; that is when you would want to be buying this stock.
Free Chart