Do you see how Salesforce.com (CRM) is trading after hours? Here’s your trade for tomorrow. (November 27, 2018)
CRM
Salesforce ( NYSE: CRM ), a big move after market, right? We’re up over 7 percent, that’s a nice move, it is also right up against the 200-day moving average. The only reason I point that out is because it is now relevant. After bouncing off it a couple times here, three different times, it finally knifed below and then it was unable to get up above there. So you could see how this has been a pretty solid line of support and then once broken resistance. Now, this is coming back up to test this.
I’m looking at this as a potential and it will only be a potential short tomorrow. It has to show that this is not going to be a gap and run. Now, how can you tell that? It’s not that tough. The stock is going to gap up tomorrow, if it keeps going that’s a gap and run. You don’t want to be short that; you don’t want to jump on top of a rocket ship just when it is taking off. And you don’t want to jump on top of Salesforce ( NYSE: CRM ) if it gaps up and keeps going.
Instead, I would look at this 200-day moving average here, we’ll call it 135.00, I would look at this as really kind of a line of demarcation. Wherever the stock opens up, that’s going to be a real critical point. And if the stock starts to drift lower then I want you to keep an eye on where the intraday high was. Where was the stock at the highest, say over the first two or three minutes of trading?
If the stock is back below that then you go ahead and short the stock; by the way, I said if. If it is not DO NOT SHORT THIS STOCK. But if it is go ahead and short it and then you define your risk this way: You put a buy stop immediately on that short that is maybe one or two percent ABOVE what the intraday high was. In other words, what that morning little gap and then reverse was. So you put your stop just above there, that way it contains your losses so right away you know how much you are going to lose if you are wrong on the trade.
Speaking of being wrong, this is the main reason that I wanted to show you this: Trading after hours can be really problematic. This is just the badlands of trading. I don’t really know of too many professionals who trade after hours. Now, I know several who trade before market. If you are really going to get up early a lot of times you can make some decent money trading the really illiquid times during the first hour of pre-market trading. That’s not my deal. I live on the West Coast; it’s tough enough for me just to get up anyway.
The point here is, after hours it is like the first move is almost always wrong. This thing just drifted in sideways into earnings. They report earnings; I guess the guidance wasn’t that awesome. So what happens? The algorithms and the knuckleheads immediately sell. Got to sell, got to sell, got to short even. Short that stock. Sell that stock. And then a couple minutes later, this is a 5-minute bar chart so we will say 15-minutes later the stock has now taken off. Let’s say you short here at 126.00 and you are holding out for more. And then the stock jiggles up here; you’re still short. Pretty soon you are kind of trying to figure out that maybe you are on the wrong side of the trade. And so then you are going long. Then you get this little jiggle here and then you are out, you lost money twice.
What I am saying is, it is really important for you to understand that, seriously, the first move in after-hours trading is almost always wrong. And in my experience, and it has been pretty brutal experience at times, in my experience you are better off doing this: You are better off watching this and then saying, I see where the high of the after-hours trading is. That would be right at 137.90, right where this line is here. So I think what I am going to do is draw a line here just like that magical trader Dan Fitzpatrick just did. I’m going to draw a line here and that is going to be my frame of reference tomorrow. I’m not going to do anything right now, I’ve done my work, I’ve drawn the line, that’s it. And then tomorrow when the stock opens up as long as it is below that line this could actually be a pretty good short. I will make more money IF, I’ll say it again, IF this trade sets up I will make more money shorting this stock on a proper entry than I would trying to bang some shares around after hours.
Now, I keep stressing if and this is why; because look, the market has been oversold, Salesforce ( NYSE: CRM ) has got a heck of a business. I don’t care if they guided a little lower, everybody is guiding a little lower. The only thing I am guiding higher on is my weight. So we look at this right now, you could see this stock gap up and then just keep on going. So listen to what I am saying, IF the setup that I described sets up go ahead and take that trade. But if you don’t get a trigger on this then just look at that and say, well that was an interesting video Dan but it didn’t make me any money. True, but it didn’t cost you any money either because it’s free.
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