Two weeks ago I wrote this post discussing that a lot of money was being made on the desk via reversal patterns. This post will discuss a few trades from last week that continued to show this pattern remains highly relevant and where a lot of money can be made intraday.

On Thursday after the Supreme Court health care decision was announced we were momentum trading health insurers and some hospitals. After the initial momentum trading subsided clean trends developed in several of the names. Some of these trends ended in the late morning and we then saw reversals and clean trends for the remainder of the day. UNH was my primary stock and the one that I tweeted as its reversal pattern began to emerge. Once the price action confirmed a reversal above 57.50 it trended higher for 2.25 points which was a point higher than my initial target area.

As I wrote in the previous post, there is usually no rush to pile in on the reversal trade. Wait for the stock to have a powerful move in the opposite direction of the trend. Then watch to see if the stock starts to move sideways or continues its counter-trend move. Entering the new trend can be difficult without some sideways consolidation and a clear breakout. This is where tape reading skills are quite helpful. If during the initial trend you were able to spot key levels on the tape you can use those prices as benchmarks to enter a position during the new trend. This UNH chart illustrates the reversal trade fairly well. During the initial downtrend 57.50 and 57.20 had been key areas of resistance so when they were breached on the way up they signaled good entry points to me.

On Friday we saw a large gap lower in NKE after reporting earnings. Our initial trading plan was to focus on trading NKE short below 87 and look for a move down to the after hours support between 85 and 84. Those who traded NKE right on the Open made money trading it short.

After bottoming close to 85 NKE popped to the 85.80s  where I began a short position. But NKE continued to trade higher stopping me out. I shorted again when NKE failed to hold above 86.50. I was stopped out again. At this point I started focusing on the reversal trade. I saw buying at the 87 level just as there had been at the 86 level when I had been short. The price action was very controlled and large offers that appeared close to the bid were being bought. I opened a small long position. When NKE began to tick above 87.15 I bought some more. It traded up about 50 cents before pulling back to 87 and holding the bid. Exactly as it had done at 86. It was clearly being accumulated and was in a controlled uptrend.

This was VERY unusual price action for NKE. I couldn’t recall it ever trading this cleanly. This controlled. So the chatter on the desk picked up. And eventually most traders on the desk were positioned long as it broke above 87.50 and trended up to 90.

As we entered the final week of June I remember thinking that it had been a particularly hard trading month. In between earnings season, constantly reversals in the bigger picture trend, a fairly tight range for the market, some very slow summer days and an average level of volatility. But the final three days of the month presented a huge amount of opportunity. Those who were focused and kept their heads in the game turned a sub-par month into something pretty good.

Steven Spencer is the co-founder of SMB Capital and SMB University and has traded professionally for 16 years. His email is [email protected].

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