We have written many times about the importance of reviewing charts each night for a variety of reasons. One such reason is to spot patterns that seem to be most prevalent during a particular market period. Since earnings season began a few weeks ago I was noticing that quite a few stocks that were trending down in the morning were reversing course and trending up for the entire afternoon. Does it surprise me in a market with a strong underlying bid that eventually weak stocks are finding buyers intraday? Of course not. Do I feel very comfortable being long stocks that are reversing in this trading environment. Of course I do. 
On Monday we saw CTSH get clobbered in the AM. It reversed course and trended up very cleanly for several points. Yesterday, I saw the same pattern unfolding in TEVA so I decided to tweet it and share with the traders on our desk. It trended up until the close and continued in the same uptrend this morning. Today, EOG was on our radar and trended higher very cleanly for over two points in the afternoon.
I discussed this reversal pattern with one of our more experienced traders yesterday so he would start scanning the market for similar setups. I had no idea that he actually had lost money in CTSH shorting into the uptrend Monday afternoon. Our discussion plus the pain of the loss he suffered in CTSH was a catalyst for him to catch the reversal in EOG today. That makes me happy.
One of my mentee’s popped into my office to discuss EOG midday. He wanted to know if he should look to short it at 88. We reviewed the charts of CTSH and TIVO, which provided a very clear answer to his his question. No, don’t look to short EOG at 88 but if it gets above 88 and holds then get long and look for it to trend higher. I am happy to report he did just that and made his biggest chop in his short three month trading career.
3 Comments on “Paying Attention+Communication=$$”
Steve and/or Bella:
Would it make sense to buy 1/2 a position for example near the bottom of the base of the higher low then add the 2nd 1/2 position when it breaks above the consolidation?
For example on $TEVA: Buy 1/2 position ear 50.25 w/ stop below 50 (or even below 50.15 to keep it tight)
Then on break above consolidation (50.40/.50) buy 2nd half??
Or for these types of plays, would you rather just stick to buying the full position on a break above consolidation?
big thanks for sharing your observations about how things are behaving. always useful to know what other people are noticing
very cool. I saw your tweet on TEVA but didnt have time to look, however I was actually in EOG today to the upside too, it had some very interesting action towards the LOD – made a new low and suddenly had a huge influx of buyers and definitely had shorts reversing out.
Great post, good points as usual. Always keep the big picture in mind.