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Here is an earlier email from Gitanshu who is a trader. He clearly
understands the market efficiencies and structural inefficiencies in his
particular niche.
He clearly knows where the money is and how to get it. Not that it's easy,
but he knows how to do it.
Best regards
Walter
----- Original Message -----
From: Gitanshu Buch <OnWingsofEagles@xxxxxxxxxxxxx>
To: <metastock@xxxxxxxxxxxxx>
Sent: Sunday, April 11, 1999 7:52 AM
Subject: Re: Trading Strategies: CPQ
> >Does anyone have experience/advice in trading large gapping stocks (as
> >expected from Compaq on Monday)? I am currently short the stock but not
> >sure if I should cover at the open or wait until the end of the day. I
> >would appreciate any suggested technical indicators for these type of
> >'gapping' stocks.
>
>
> Jay
> Here is how I trade 'em:
>
> a/ The open is the best time to cover a short like you have. It represents
> the peak of fear and the maximum imbalance between buyers and sellers, so
> the specialists take them down as much as it takes to find other buyers at
> some price level to help them share their burden of making the market in
the
> stock.
>
> b/ By "the open" I mean the first 10 minutes of trading. The stock will
> open - say at 26 and trade down to 24 in 3 minutes. All these orders
getting
> filled will be pre-existing orders on the specialists' system and it will
be
> virtually impossible to trade off the screen since the fills get reported
> late on days like this. You are therefore better off having a GTC limit
> order to buy at 1 buck above whatever the opening indication looks like,
and
> be sure to have your order logged before 9:30 regardless of opening delay
on
> the stock. Once the limit is hit it turns into a market order, and you
will
> be given a lower fill if price gaps through your target. Thus it is almost
> immaterial where your limit price to buy is on CPQ, a 30 or a 28 or a 25
or
> a Market order will get you the same fill if it gaps open to 22.
>
> I would do the above on at least 50% of the position.
>
> For the balance, here is what I do since I am never really sure if the
> opening gap is filled by a retracement on the same day:
>
> There normally is buying pressure immediately after the open. This lifts
the
> stock up a couple of bucks, and this gap also lets the bottom fishers come
> in and buy - who think they are getting what was once a $50 stock for half
> that value due to a temporary "Wall St Knee-jerk". All this combines to
> bring the stock back up for 2 or 3 days - maybe for CPQ may also be a week
> since it is already so low.
>
> My trailing stop on the remaining position is therefore 1 buck above
Friday
> close - if you still want to be strategically bearish and ride the
downtrend
> and have half a position.
>
> Equities like CPQ almost never make a V bottom. There usually a retest of
> the new lows (within about 1 dollar) a few days or a couple of weeks
later,
> at which point I re-evaluate whether a double bottom is being formed or
> should I ride the trend.
>
> Here are a few examples whose daily charts you could pull up to see what
> happened. The only difference between these and CPQ is that they were
riding
> bull trends when they gapped down open, and CPQ has already been in an
> established downtrend. Given that, one HAS to respect the fact that this
may
> be an exhaustion gap happening on Monday.
>
> PMTC - Parametric Technology
> CA - Computer Associates.
>
> I no longer have intraday charts on these but the dailies convey the
> picture.
>
> Most technical indicators I know of fail, due to the largeness of the gap.
> The only reference points therefore are prior support levels and intraday
> price action on a 5 to 15 minute chart.
>
> Regards
> Gitanshu
>
>
>
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