Interested in the short, intraday swings of stocks? Let’s look at two distinct patterns…Angie’..
Discussed in this article: SINA Corporation ( $SINA )
I want to go over a couple trades here. First of all SINA ( $SINA Sina Corp ). I sent a note out on this to members and posted in the forum, as well, and over at Option Market Mentor too, for that matter, just a couple minutes after the open, saying that this was setting up to be a pretty good short. And so this isn’t a “yay” for me video, that’s not what this is about.
Actually I just want to show you a dynamic here that I think you can capitalize on if you just understand, basically, how stocks trade. The company announced that ALIBABA ( $ALBCF ALIBABA COM LTD ORD ) was taking like an 18 percent stake in SINA’s ( $SINA Sina Corp ) E-commerce social networking something or other. Honestly, I don’t understand all that stuff, as far as the nuances of the company, but I know they’re a social networking business over in China, with E-commerce is well. So that’s all good stuff, social networking, E-commerce, huge fan, it’s a big crowd favorite here in the Fitzpatrick household.
So this news comes out, the stock gaps up huge. Now, as a trader, if you’re all ready long the stock, and actually it’s one that I’d been covering, though I don’t know of too many people who were really long this. But if you’re already long this stock now what you’re doing is you’re scratching your head saying, and I’m talking about day trading here guys, what you’re doing is scratching your head going, “Okay well do I sell? I mean this stock was at $50.00 on Friday, now it’s up at $60.00 today, I think I’ve got to take that 20 percent gain.” So you’re going to get a lot of folks that are taking profits, as they should.
Look at the volume; I would say there was a lot of trading activity on this stock. So if you’re a day trader and you’re looking at this saying, “Okay, well do I go long or short?” Your bias should actually be to the short side not the long side because what tends to happen with these stocks is; everybody rushes in at the open to buy a stock that’s up 20 percent. Why? Because they want to be the first ones in the door because they think maybe they’re going to be able to get another five percent or something like that. They’re not understanding that professionals, and I’m not talking about the guys with the creped soled shoes walking around the floor of the NYSE, there’s only about nineteen of those guys still around, everybody else is in front of their computer terminals, but I’m talking about other traders who get how stocks trade; they’re sitting there waiting to assess what the demand is.
So all these orders come in right at the open to buy stock. Well, if you’ve been trading stock for a while you know that the orders that come in right at the first part of the day, it’s not like that same amount of money is going to continue to come in all day long. It’s a big rush for the entry it’s, a big rush of money to get in and buy that stock.
Well if you understand how dynamics work, how these trading dynamics work, you’re a professional; you’re going to say, “Hey, I want to fill some of that demand. If everybody wants to buy stock I’m happy to sell you that stock, but it’s going to cost you money.” So you start raising your offering price, you raise your offer price, see how high traders are willing to pay. You’re selling stock, otherwise known as shorting stock, you’re selling stock and then once that demand starts falling away, then if you’re continuing to sell you can get less and less money for the stock; so you’re dropping your offer, you’re dropping your asking price and the price is slowly coming down until you’re done selling the stock.
Well then, does the stock stop going down? No, all those buyers that came, well guess what? They’re long the stock and they’re not a bit happy about it. So now they’re selling. So what this morning’s buyers have done is replace you at the front of the selling line, listen to me, I’m giving you pearls here, they have replaced you at the front of the selling line, so then they are creating the supply that’s now overwhelming the demand and driving the stock price lower; the stock that you shorted somewhere up here.
So what are you doing? Well, you’re waiting for that supply to run its course, and then once the stock is done going down, now you’re happy to buy it back at a discount; that would be called closing out your short position. Guys, this happens every single day in the market where a stock gaps up big and it trades off, you’ve got folks, the smart guys are shorting the stock first thing in the morning and then they’re covering later in the afternoon, or even later in the morning. My 59-Minute Trader course goes into the dynamics of shorting stocks first thing in the morning. There’s a reason why it’s called the 59- Minute Trader. You sit and watch the market for a minute then you decide where your move is, you get your set-ups and within, say five minutes after the market opens you should be properly positioned in your trade. Not every trade is going to be profitable, but you’d be amazed at the amount that are profitable if you use some tactics that I explain there. So hopefully, if you haven’t already checked that out, please do that. You can find that on Stock Market Mentor in the educational products.
Anyway, so here on SINA ( $SINA Sina Corp ) the stop gapped up, opened at $59.53, traded up almost a buck, and that was that. Okay, that was it, actually traded up a little more than a dollar and then the stock turned around. You could have actually got off a short right here in the 58’s and then made a nice chunk of change. Well, as it turns out this stock trades sideways during the day on very, very low volume, which is what stocks do. But where’s the highest volume bar? It’s right here at the open. Massive volume, over three million shares traded; on average less than two hundred thousand trade, so this is your first tell that you’ve got massive, massive buying interest at the open.
Now how do you know it’s buying interest as opposed to selling interest? Because the price is up. You can say like, “Oh, well there’s more buyers than sellers.” No, the buyers were more passionate about buying than the sellers were about selling, so its relative aggressiveness of buyers verses sellers. Please take note of that, I’m giving you pearls, it’s really important that you understand that it’s an aggression thing, its relative aggressiveness, relative passion, whatever you want to call it. Buyers were really, really excited first thing in the morning; I just want this stinkin’ stock, I’ll pay anything for it. Boom! Well guess what? That’s as much as you have to pay for it, you could have all you want. Then the stock is traded lower, trailed off during the day, started to trade lower.
My bet is you’re going to get even lower prices on this tomorrow. Now before you start thinking, “Well, wow Dan, thanks, that’s a real money printing machine, I’ll just do that.” No, this was a trade that we were looking at last week and I’d suggested the opposite that stock gapped up and kept going. This turned out to be a really nice gap and run as opposed to a gap and crap. Here you had a little different dynamic going on. We’ll go down I think, to the 15-minute chart here, where you can see the stock gapped up and just never really looked back; it just kept moving.
So my point for bringing this out is there are two ways to make these intraday trades on big dislocations, on big price dislocations up or down. You just have to understand the dynamics of trading; you have to understand that it also relies on what the market’s doing. If there’s a lot of selling pressure on the market on a given day, a stock that gaps up that might normally keep going, would instead sell off just because traders are trying to raise cash.
There’s a lot to this stuff. My point for bringing it out in this video is just to show you there is a way for you to make money other than just buying and holding stocks. And by the way, if you can understand this dynamic, then what do you think if you’re holding this stock, what do you think was the right move for you this morning? Sell that stock at the open. You like SINA ( $SINA SINA Corp ), you like the prospects, you see the stocks forming a base, you want to be a buyer and a holder, fine. You bought it here, you held it all the way up until this stock gave you 20 percent in a day, that’s your yearly return, you’re happy, take the stock. Now wait for a little bit more of a pullback, buy it, don’t expect a similar gift, but at least you’ve had a really nice profit in this stock. You wait for the stock to come into the low fifties and you buy it back.