On the Open GMCR and BEC gave us a signal from the Level II, we say Reading the Tape, that they both were going down.  After this signal there was opportunity to add or take a position with the side of this signal.  Some time passed and then it happened.  Both stocks headed in that direction of the signal.

33.50 was a support level on the open in GMCR.  It finally touched below and then GMCR spread out, the bids were very far away from 33.50.  In this stock where there were bids and offers every 5c minimum this was a sign.  There were many prices skipped below 50c.  This was a signal from the tape that GMRC was about to get weak (you could see the same signal just from the selling side above 33 when GMCR was ready to go back up and test 33.50 again).

74.50 was a level on the open in BEC.  We traded above this price strongly and then hit some selling.  Then BEC touched below 74.50 and something very strange happened.  The bids were no where to be found till 74.  There was an offer at 74.50 but in this stock that had bids and offers every 10c now there was no bids for 50c.  This was a signal from BEC that it was about to reverse and get weak.

Orders are almost exclusively handled by algorithms, coded auto trading, in this modern market.  The spread widening, no bids suddenly for 50c below important levels, prices being skipped is a signal that the buy computer programs are not present or now not as aggressive.  Thus the stock is ready to trade lower.

Remember we do not make trading decisions just from Reading the Tape.  But we are interested when the tape offers such interesting information.

Mike Bellafiore

Author, One Good Trade