GMCR has been an excellent intraday trading vehicle for the past four days. It first caught my attention on Friday when it had a high volume break above a long term resistance area (see chart). Whenever a momo stock, or former momo in this case, has a high volume move I give it special attention. Momo stocks are repeatedly pushed around in a predictable fashion by momentum hedge funds. This has been the case since I began trading in the mid 90s. A high volume break above resistance often leads to outsized up moves so I was strictly focused on the long side initially.
It didn’t disappoint trading up an additional three points Monday. It rested a bit yesterday but I managed to take some money out of it getting long against 31 and adding above 31.30 before it traded up to 32.20. You can see from the 30 minute chart that the uptrend was still very much in tact after Tuesday’s close. My thought coming into today was it might have one more day of upside taking it to 34-35 before pulling back. But I was prepared to trade it on the short side if it broke its multi-day uptrend and I saw a second wave of selling after an initial down move.
On the Open GMCR quickly drove higher making a new multi-month high above 33. But it just as quickly reversed pulling in about 80 cents. This is when I started watching it. This quick reversal was not enough to get met to short it. It was still trading above the prior day’s trading range (other than the first few minutes) and there was plenty of stock being bought aggressively on the offer at 32.30. It spent about 15 minutes bouncing around between 32.25 and 32.50 with most of the volume being done around 30 cents. I was long. The buyers finally gave up and it quickly drove lower. Now I had a short bias. This was my stocktweet.
Steven Spencer Prop Trader, SMB Capital
my bias has finally changed to short in $GMCR. against 32.30
10:04AM
At that point I tweeted that it needed to consolidate below 31.50 before having another down leg. I observed on the tape buying in front of 31.40 as well. There was around two hours of consolidation between 31.40 and 31.60 before some more selling pressure emerged triggering a good short entry below 31.40. The trade was quickly confirmed with a move below the prior intraday low of 31.30. I had established 30.60 as a target for this down leg based on two things: the significance of the level on the 30 minute chart and a measure move of 80 cents.
I received an email earlier this evening from my mentee lamenting the fact that he had not done a good job identifying GMCR as a top priority to trade and asked if I had any thoughts on how he could do better. I offered the following:
so in terms of how u do a better job of getting into a gmcr it is two steps i think.
- top of your list because it has been so in play and it is a momo stock that has shown itself to have outsized moves
- once it makes a new high today and reverses and has the second down move u need to say to yourself that it is time to focus on a way to get involved.
Two things I consider when evaluating a trade is what potential does this stock offer based on its price action and volume and what is the stock’s higher time frame trend (for intraday that would be 15-30 minute chart). If I am thinking about those two things before every trade my win rate should increase as well as the size of my winners. Higher win rate and capturing larger moves can make the difference between success in failure in short term trading where losing trades occur on a daily basis.
Steven Spencer is the co-founder of SMB Capital and SMB University and has traded professionally for 16 years. His email is [email protected].
No relevant positions