$RIMM in Play

Coming into today Research in Motion(RIMM) was on my radar.  Some news had come out in the pre-market about the pricing of its tablet computer.  The news basically said that the tablet would be priced below $500 which would make it a cheaper alternative to the iPad.  The pre-market wasn’t showing much in the way of price action but I had RIMM on my watch list to see how it would react to this news. 

Immediately on the open RIMM showed some strength, basically trending higher for a $1.50.  The first level I was watching as potential resistance was 56.60 which was the highs from 11/08.  We broke this level in the first 15 minutes but this was where your skills as a trader must come in.  First of all the stock had just run for over a point so odds are pullback or sideways consolidation was to be expected.  Second the open in this market lately has been a chop zone with a lot of volatile sideways action.  For about 2 months now, in our morning meetings at Keystone, we have talked about the better opportunities presenting themselves after the open around 10-10:30am. 

After the open I knew I wanted to get involved in RIMM.  The market was showing weakness especially in the tech sector and RIMM was staying relatively strong.  It was only a matter of waiting for RIMM to consolidate and finding a good area to manage risk.  I entered during the hour-long consolidation pattern and added on to the trade when it broke the high of 56.81. 

As you can see for the rest of the day it was just a matter of how much you made on this trade.  Personally I missed about .70 in middle of this trade because I covered the entire position around the resistance at 58.00 instead of holding a piece.  I got back in on the next break out but left some money on the table.  Coming into tomorrow I am expecting RIMM to still be in play as this is usually a stock that trends for a few days after a news related break out.  The 200ma is at 59.50 but above that could see a trend into the 61-63 area.  Best of luck in your trading and have a great night. 

Kyle

NEVER PREDICT, REACT!

Today’s meeting and insight on the trading day yesterday brought a lot of ideas full circle for me. Pete mentioned that a lot of traders including myself were confused with the market yesterday especially during the morning sell-off after the gap up. As Pete began explaining that essentially, the market is going to do what it wants and you cannot have any emotions about it, I began to remember the famous Mr. Market metaphor by, of all people, Warren Buffett.

Interesting how this fundamental investor provided one the best insights on Prop. Trading and specifically trend trading. Simply put, if you did your home work, you have a game plan, a price level, an ISL, an IPT, a break even point etc…, you are very well prepared but the market is not looking rational to you, step back and do nothing.

Mr. Market does not always give you the right price says Warren, he also does not always give you the right set-up. It’s OK.

Don’t get upset, mad, frustrated, simply look for the opportunities Mr. Market is giving you, or wait. It is very easy to feel like you need to do something, and I know this has been said over and over, but we need to keep reminding ourselves that doing nothing is also a position. Sometimes, by sitting back, and calmly cycling through your stock you may start to see things differently than what your perfect picture of the market looked like coming into the day.

You may start to see swing-low opportunities in a strong market week opening situation. You may start to see relatively strong stocks in a non-broad based market. You may even realize that, hmm… I rather not take these trades because the risk/reward is not there.

Patience is a virtue and it pays to be patient!

-Lee

$SPY in a tough trading area

Trading the $SPY for the last 7  days long has been relatively easy. Technically speaking it is text book. Large range days with good volume on rallies. Significantly lighter volume on days with small price ranges.

We rallied into the 200SMA on the daily chart last week @$111.78 and paused, with everyone looking at the same charts this created a lot of indecision. (again, perfect technical structure)

Keystone traders went home Friday with a game plan with two scenarios; what do I trade if the 200SMA holds as resistance and what do I trade if buyers some back strong and this significant level gets taken out?

Based on the light volume pause for the better part of 3 days (after the violent momentum rally) we expected a bullish day (this was not a guess it is technical analysis 101). However if we did get the bullish stampede there was an even bigger level to be aware of in the SPY at just over $113.

This $113 is the level that excites the sellers to come off the sidelines, it has been the trigger since just after the flash crash in May.

Now here is the situation you are faced with as a trader: long (being a buyer) is the correct trade, but there is limited upside potential to the trade taking into consideration this mornings gap to the upside.

What do you do? This is the zone where a lot of money is lost. The buying ideas are still valid but have less profit potential but there are not that many solid short sale scenarios.

I will ask again, what do you do?

Most inexperienced traders who feel the longs are not following through will put out short sale probes or actually in allocate capital to a full short sale position (because longs seem to have used up all their energy).

The correct play here is to be patient on the longs for new levels or better risk reward (from lower levels, which would be a flag on a daily chart) or do nothing. Doing nothing is the hardest thing to do.

Remember, not wanting to be long is not necessarily a reason to be a short seller.

$HPQ- Do You Know What an “A” Trade Looks Like??

Our main job as traders is to take advantage of the opportunities the market provides us everyday.  We take these opportunities and turn them into trades where we must manage the risk/reward associated with each idea.  It is up to us as traders to risk more on our really good ideas and lower our risk exposure when the probabilities are not in our favor.  Today Hewlett-Packard(HPQ) provided a great example of a trade where it was our responsibility to trade it with some size and take on more risk because it was an “A” setup. 

For the past few weeks HPQ has been in the news and has been trading with increased volume.  After the gap down earlier in the month HPQ has been showing relative weakness compared to the rest of the market.  Going into the open today we knew that 40 was an important intraday level to watch.  We opened at this level and it immediately held and we started to trade lower.  I didn’t get in on the open so I was looking for an offer to hold and sellers to step in.  This happened at 39.85 as the offer was getting hit and HPQ wouldn’t trade higher.  A print went off for 400000 shares and the bids dropped fast to 39.80.  The bid started to get hit so I got in, knowing that I would add size to this trade if the offers held below the low of the day.  I added to the trade below 39.70 and was able to get a point from my core position scaling out some of the trade at 39.25. 

The main thing I need to take from this trade was how I felt and the conviction I had in the idea as it was playing out.  I knew what I needed to see, to know the idea was playing out.  I was able to hold most of my core position for the entire move because the trade was acting like a weak stock should.  As traders we should be looking for more of these “A” setups as they allow us to trade with size and a stronger conviction.  These are the types of trades which can make your day, which in this market can make your week.  Best of luck tomorrow and have a great night. 

Kyle

MON: Monsanto showing healthy price action

MON: Monsanto demonstrated some terrific buying order flow for a few weeks and has had some time to consolidate the explosion. This pattern of “catching up” is one of our favorite price action scenarios to take advantage of.

I am looking for the stock to approach the $62 level again with the ultimate profit target of $65,  risking a close on the daily below $56.