About two hours ago I tweeted: $CREE near 60 huge R level
@biggercapital responded: would like to hear your what if scenarios RT @smbcapital: $CREE near 60 huge R level
And then came @readerfinance: would like to hear your what if scenarios RT @smbcapital: $CREE near 60 huge R level: would like to hear your what… http://bit.ly/dodYtu
At SMB we make trading decisions based upon three factors: intraday fundamentals, technicals, and reading the tape. 60 was a significant technical level for us. CREE could not close below 60 since the start of the year. And then it did. Important support that is broken becomes resistance. And so 60 became an important technical resistance level for us.
Now trading is not get short at a level and hope for the best. If it was this blog would not exist nor perhaps my firm. CREE was nearing 60, this technical level, but how do we trade it. What were our if/then statements for this opportunity?
Now let me say that I was not crazy about the fact that CREE had recently blown through another important technical resistance level of 57.75. Let me add that there was nothing on the tape that showed weakness as CREE found 60. Also, SPY above 109 makes for a strong market of late. Finally my thesis for shorting 57.75 was that CREE would turn from a growth stock to ordinary with potentially a much deeper decline imminent. Didn’t happen.
But this was an important technical level. So I shorted the level. For me this was a short one lot, cover half into a downmove to 35cish and then hold the rest. The cover is above 60.35-60.50 depending on your trading time frame. I would have added more and held longer if the tape confirmed the weakness at 60. We didn’t really get that. CREE failed from 60 but I didn’t see the battle, the brick wall at 60 of selling, and then the seller stepping lower that would have gotten me to add size. Also the market is still holding its head above the $SPY 109.
So I made the trade. If I make this trades a thousand times I will make a profit. That is how I judge my trades and not whether this one trade will work. I will make a profit in this CREE trade no matter what the result now as I covered some 31c, 26c, and then into the whole. I will hold the rest till I am stopped out most likely. As of yet I see no reason to sink my teeth into a huge short but that can change depending upon my observation of the market and stock.
I will discuss this trade via video with our SMB Trade of the Week on the NASDAQ app for the iPad and StockTwits TV and post the video soon.
Mike Bellafiore
Author, One Good Trade: Inside the Highly Competitive World of Proprietary Trading (Wiley Trading)
6 Comments on “My CREE Trade”
Thanks for the tweet on cree. I watched the video on Monday about how crew could go to 55 and maybe 50 and now it is near 60 . I bought it at 60 and got crushed but left it on as a learning trade
So, in this case the only reason you entered the trade was that 60 was very strong level on the chart.
Ivan,
Yes. And absent intraday fundamentals and the tape on our side we only make this trade if we love the level.
Bella
Hi, I’m no market wizard, but I know from personal experience, Your quotes are really nails it. Thanks for nice post.
Thanks for sharing.
The latest pattern of that stock has also been to take out the last pivot low and then make a bounce.
That is also what happened once more around 56.
Great book by the way.
John
Sweden
Looking again at this CREE graph I think it was also reasonable to expect that a number of buyers (without tape access) would come in to purchase this stock in the A.M. because of the perception that it was low or relatively cheap, and end up getting stopped out, sending the stock tumbling even further. I’ve seen this happen on good swing stocks too. Uninstitutionalized traders are usually not willing to risk more that a few pips when they’re on the wrong side of the trade, so they often contribute significantly to the turn-arounds by waiting a little too long to try to cash in on the momentum.
This technical situation (the break below 60) is also probably significant enough to be considered as a catalyst in itself. It’s not necessarily being reported on MSNBC, but it’s still likely that most of the traders monitoring this stock are going to take note of the price development and react accordingly. So in this case, I think that there is a legitimate argument in favor of technical analysis in that charts can have an effect on the way people trade just as business news does.