The MON move that began at 2:30pm on November 10th 2009 was a classic breakout trade on heavy volume.  The catalyst for the move were the documents that MON released on its website giving financial projections for the next three years.  But put aside the fundamentals for now and focus on the tape and the technicals.

1) MON had failed to hold a bid above 70.30 in the previous seven trading days

2) MON had a failed breakdown earlier in the day below 69

3) The volume began to pick up right at 2:30pm and at the 70 level.  the bid never dropped 70.30 once it reached that level

4) the uptrend that began at 70 remained intact in every single time frame until MON climbed to the next major resistance level of 74

5) the volume really began to pick up when it traded above 71.50 which was the type of confirmation you would want in order to conclude that it would trade to the next major resistance at 74

6) the pullback in the final 30 minutes was nothing out of the ordinary to lead one to believe that there will not be strong follow through to the upside tomorrow

7) after hours action today confirmed the strength with it bidding up more than 50 cents to 74.25

I wasn’t trading when the move began.  But based on the recent price action and the 70.30 level that has been highlighted numerous times in our AM Meeting that was the price to establish an initial long.  There was a chance to add after a very brief consolidation at 70.75 when it ticked above the high of the move at 70.82.  At that point you were in the driver’s seat as it quickly traded above 71.

At around 2:53 I got a g-chat message from Bella that MON was breaking out.  It was trading at 71.75 when I started watching. I saw it quickly trade up to 72.25 and then stop.  I placed a bid in at 71.82 and luckily got hit.  My out was below 71.75 with potential upside to 74 if it traded above the previous high of 72.25.  I was risking 10 cents on a trade with potentially over 2 points of upside.  It was in a clear up trend with increasing volume.

I glanced at my risk monitor to see who else was long.  Bella had some shares and a couple of the newer traders had small positions as well.  I then saw a few of the better traders on the desk establishing short positions.  That was confusing!  MON was in a clear uptrend above major resistance and the volume was exploding!!  Perhaps my risk monitor was malfunctioning? (If only Dov Bar had been in the office–he would have added on every new high!)

There is a very strong instinct among traders to take a position opposite the trend if the move happens very quickly.  I don’t know the exact psychological reasons for this phenomena but I suppose it has something to do with the fact that when we see something so out of the ordinary that we expect it to move back to the realm of the ordinary.  But if you look at the MON 5 minute chart it is pretty clear that this was an extremely orderly uptrend.  In fact, the buying was so methodical that I would be very surprised if the large buyers who accumulated today don’t push MON a few points higher tomorrow.

This brings me to my final point on how I will trade it tomorrow:

1) Observe premarket action—Is it trading above 74?

2) When the market opens if there is a quick down move does it hold below 73.50 for less than one minute?

3) Does the bid hold above 74.80 on the Open?

4) Can it hold a bid above 75.75 after an opening drive?

If the answer to all of the above questions is yes then i would expect a move to at least 77 and a stretch to 78.

The burden of proof is on the sellers at this point.  A lot of money was pumped into MON in the final 90 minutes of trading action yesterday.  That money will most likely defend the stock at 73.50 and attempt to push it higher.  The buying wasn’t short covering as shorts cover in a haphazard manner that is the antithesis of the kind of move that we saw yesterday.