Looking for some trading tactics for buying oversold rebounds? Here are some trades on Weight Watchers (WTW) and US Cellular (USM) (February 28, 2019)
WTW USM WTW USM WTW USM
I want to do a quick video on how to find bottoms, oversold rebounds, and tactics for trading them.
The first one we are going to look at is Weight Watchers ( NASDAQ: WTW ). They reported earnings and then on Wednesday they traded down, I want to say like 30 percent. You see headlines about; Oprah Winfrey lost 300 and blah, blah million dollars on this and that. The stock falls like this; two standard deviations on the Bollinger Bands; let’s go even three. So we’ve got three standard deviations and that puts this well below the statistical extreme.
In other words, when a stock falls this far out of the norm it virtually almost has to snap back, it is kind of like math. So when you see something like this, I saw this yesterday and I actually bought a little bit of stock in the pre-open. I didn’t really make much money on it yesterday, maybe a nickel or a dime or something but just not that much money yesterday. But I saw how the stock was trading pre-market. I am looking at this and I said, “Well crap!” I think it is pretty safe.
I don’t know how far the stock is going to move up but on this kind of massive volume, 35 million shares, where on average it doesn’t even trade 2 million a day, 35 million shares, the stock stabilized very, very close open and closing prices. So I think this is a pretty low-risk trade. You can definitely define the risk; the low here on Wednesday was 18.80. I think I had my stop at 18.00. It wasn’t trading that great yesterday; it just was kind of flopping around sideways but I gave my stop a little bit of room here.
Today we are looking at this and we had a Trader Training Session. We traded the open this morning and this was one of the stocks that I looked at. So let’s check this out intraday. THIS is where it was trading yesterday morning. This isn’t today’s price action; this is where it was trading yesterday morning, right around 19.00. So I am in right around this level, let’s say I bought at 19.00. Then we are up a little bit, but look at what the stock is doing, this is on a 5-minute chart, this was not a big, massive snapback move.
In fact, if you look at this in the first 5-minute period, this is really as high as the stock went and it just kind of stayed there. It stayed there all morning and into the afternoon. So this is really, as it turns out, kind of a day where traders are still liquidating. Even though the stock is down 30 percent or more, I think it was 35, even though the stock was down this far early in the morning it just didn’t really rally very much. There is obvious demand at this level, 19ish, 19.50,19.80, there is demand otherwise the stock would keep going down but there is supply. So from an equilibrium standpoint this is the trading range, in the 19.80s. And then we are into the last hour of the day and we are still right there.
Here’s my point: I had no problem holding all day yesterday because the stock wasn’t moving against me. You see the big, big huge dislocation but the stock wasn’t moving against me. Or to put it another way, and listen to me here, I didn’t see the danger of the stock going down further. It is already down so much that if there were going to be additional selling it would have happened already. It is not like some guy that owns 10 million shares was on vacation and he is going to come back at 3:30 on Wednesday and say, “Oh my gosh, I have got to sell some Weight Watchers!” So the fact that this stock traded sideways all day long, all this did was give me the sense that Thursday could be the deal.
So this was one of the stocks that we were looking at. Then sure enough, what happens? This was yesterday, now we are into today and what happens with the stock? Boom! Right there, right there at 9:55, we’ll even say 9:50; the stock broke out above this 19.83 and then continued up bigly; look at the volume here. So this is starting to be the payoff for holding this stock all day yesterday. Members were buying this stock this morning and then here we are going into the rest of the day. The breakout is around 19.83; the stock is up $1.00, which on a $20.00, I will let you do the math there, that would be 5 percent and it was up much more than that. This is how you make these day trades on these slam plays; on these plays where the stock is just absolutely crushed.
Now another one that I just looked at today, I took a small position, it is fairly illiquid stock, is U.S. Cellular ( NYSE: USM ). You can see what happened here, the stock gapped up last week and then traded down. So yesterday, finally, the stock came to some kind of rest right at the 200-day moving average. I didn’t see this yesterday but I saw it this morning when I was looking for stuff to trade for our webinar.
So here’s the deal: The stock comes down here right around 46ish or so, you are buying the stock; right? The stock now is at 46.88 and starting to move higher. So I take a small position here looking at the same exact idea as Weight Watchers ( NASDAQ: WTW ) yesterday was U.S. Cellular ( NYSE: USM ) today. So I have a position in the stock, it is kind of sleepy enough to where I am comfortable holding the stock. And here is my stop; it is not today’s intraday low, for crying out loud, yesterday was lower. The day before, even lower still.
My stop on this is a little bit below Tuesday’s intraday low. The low here was 45.56 so the stop here would be like 45.50 or so. So if the stock falls below 45.50 then I am going to be out of this trade. That is like a 3 percent risk; and as I am just kind of looking at this, I am not going to use Fibonacci or anything like that, but I am looking at a pretty modest gain of 3 percent, maybe a little bit more, but all this selling pressure, the stock is going to be bought and it is bought. There is my risk/reward on this and I think this is going to turn out to be a pretty good trade. Not an awesome trade but a pretty good trade; we are just kind of chipping around here making a little money here and there.
I just wanted to show this technique to you guys. It is something you can be finding just about every day; you can find some kind of slam play from a stock that has just gotten crushed. The important thing to remember is, it doesn’t have to be a one-day thing. If the stock falls like Weight Watchers ( NASDAQ: WTW ) did and then doesn’t do anything one way or another stick with it. At least monitor the stock because a lot of times the second or the third day you are going to start getting a move higher.
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