The fourth stock discussed in today’s AM Meeting was NXPI. It was gapping lower on very negative guidance for next quarter. A common intra-day pattern with this type of news is an explosive move to the upside in the first few minutes followed by a downside reversal. I noted in the meeting that because the gap was so large the price action would probably be tricky and thus it wasn’t one of the top 3 stocks I was considering. Nevertheless a quick pop on the open to 79-80 presented a good short entry so it was worth mentioning.

Prior to the Open rather than placing a script to short NXPI in front of 80 I placed price alerts at 77.50, 78, 79 so it would catch my attention with a quick pop to my shorting area. It opened at 74.73 and by 9:40 it was at 79. Instead of waiting for it to get to my preferred “short zone” I jumped the gun starting to short between 78-79. By the time it had its blow off top above 80 I was in a position of weakness and did not add to the position. When it started to drift lower I covered more quickly than I would have if I had been more patient on the initial entry.

Eventually NXPI trended below its opening price finding some support around 74. So my idea to short near 80 was spot on and turned out to be an excellent risk/reward. But by jumping the gun I cost myself a significant amount of PnL in the play.

Steven Spencer is the co-founder of SMB Capital and SMB University which provides trading education in stocks, options, forex and futures. He has traded professionally for 19 years. His email address is: [email protected].

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