Strategy Description: Every now and again there will be some serious news like an SEC investigation or something similar. This causes stocks to go completely belly up. When you hear news like this you should almost always just go out and hit the bid as a momentum lot and trim and trail. However, there comes a point when it becomes super extended, and these bounces are sizeable.
One thing you have to bear in mind is that there is a little halt risk.
Once the stock has plummeted a decent way; how far depends on quite a few factors, but as a guide a minimum 3ATR (say down 20% or more), and enormous volume starting to come in can be a reasonable guide.
(1) Look for longer term support as a spot to fade it into. First time it tests it can easily wick through, so get a very decent starter position only slightly over the level. Because it's a starter you can use a wider stoploss to ensure that you aren't getting wicked out.
(2) Once you're in some starter position offer out immediately for some of the position. Who actually knows if it's bottomed yet, you just want to cover risk ASAP! Stoploss now trailed to the low that was set. Can look to add against this with confirmation.
(3) For target it can be reasonable to expect vwap or slightly over (depending on how much vwap has chased it down). Just as a note, VWAP should be chasing it down because of the capitulation you are buying into.
Bigger Picture: This is serious news, so the market doesn't play a huge part in the play. However, I suspect that in a cyclical bear market this news would cause a bigger depression in price, and maybe invalidate the play.
Intraday Fundamentals: ATR=$3.59, Market Cap=$1.37b, ADV=690k, Rvol=23.6x, FS=26%.
LL reported earnings before the market open where they missed on all counts. Midday they had a conference call where they announced that the BOJ was pressing for criminal charges. Additionally they announced that there would be a 60 minutes expose on them (wth?).
The 60 minutes expose brings in a different element than the usual SEC investigations in my mind. The reason being is that traders are loading up short prior to the expose, and then as it airs they will cover those to sheep shorting following the 60 minutes expose perhaps? So it adds a new dimension for a possible second leg lower. But this is a trade idea for the future not now.
Technical Analysis:
The level to watch is very clear on the H4. Have to zoom out further to get next level, which will no doubt be in play after the expose. I actually posted a twitter status at the time: https://twitter.com/lentjes12/status/570618020034248704
Trade Management: Start into a reasonable starter size into the $54 level. Offer out immediately for a decent chunk, you don't know it's the bottom after all! Stoploss quite wide at this point, say 1/3 ATR (good RR so that's okay). Once it bounces off the level trail stoploss to the low.
Here before you add to position you want confirmation that it's holding the level, say 5 minutes above, then look for add.
In this case, it went through, hard mechanical stop would be out at $53.50ish, and then when it begins to hold $54 again get back in, and add size on the grind. Once it trends and bottomed is confirmed that's when you can get a little bigger.
In this case it started to perk up midday coming into 2pm, so stoploss on remainder could be trailed hard, with a few adds.
In this case that breakdown represented a short which I didn't take.
No comments:
Post a Comment