Thanks to everyone who responded to my initial post yesterday regarding the setup in EP.  I think this series of posts is gonna be a lot of fun and we will hopefully continue to see a large amount of community feedback on how YOU would trade various setups.  Because ultimately we each must develop a trading style that suits our own unique personality.

EP was a stock on our radar on May 24th because it was gapping up in the pre-market above its 52 week high.  For stocks with fresh news we are most focused on the order flow and less concerned with overall market action.  If the market is weak and a stock reports good numbers and raises their outlook for the future investors/traders will most often make their trading decisions on the news and not the broader market action for that particular day.

EP held its gap and never traded down to the previous resistance on the daily chart of 19.60.  Overall, this was bullish price action for the stock.  It established a very clear range for the day giving us some good guideposts for the following trading day.  When viewing the price action on May 24th I visually divide the day right down the middle at 12:45PM.  EP spent the first half of the day trading very close to the upper part of its range and failed to ever hold a bid above the 20.40 resistance area.

It spent the second half of the day trading in the middle to lower part of its range.  During the second half of the day 20.25 clearly was acting as resistance, which was lower than the resistance of 20.40 from the morning.  This may become important the following day if EP is rejected at this level.

May 25th

The easiest trading scenario for EP on the day after earnings would be for it to Open either right at support or right at resistance giving traders a chance to establish a position for a quick fade to the other side of the prior day’s range.

EP opened right at support offering an opportunity to get long and risk about 10 cents.  This is a trade I would take 100% of the time.  I would place a stop below the prior day’s spike low of 19.95.  Since the trade occurred right on the Open I would hit out of 100% of my position at 19.94.  This is because stocks have a lack of liquidity right on the open and I would protect against a quick 30-40 cent drop.

If I were stopped out of my long below 19.94 I would watch to see if there was concerted selling below 20 before getting short.  In my view the bigger picture for this stock is very positive and I would want confirmation from the tape that there was concerted selling below the prior day’s support.

If long from the 20 support on the Open I would pay careful attention to how EP reacted when it reached the prior afternoon’s resistance of 20.25.  If it were to be rejected right at this level on the Open I would be quick to hit out to protect against a move back down to 20.  I also would be slightly more bearish on it and would be more aggressive shorting below 20.

By opening at 20 those looking for an upside breakout were in the best position to judge how much buying interest and consequently momentum EP would have for the day.  EP moved fairly aggressively above 20.25 about five minutes after the Open.  The second thing that caught my attention in the price action was that it had a shallow pullback from its initial thrust to 20.38.  Stocks in the first 15 minutes tend to move up and down rather violently and the fact that EP had a shallow pullback from the prior day’s resistance was something that should trigger an alert in your mind to be prepared for a breakout above 20.40.

The breakout above 20.40 occurred around 9:54 and this is another long trade that I would take 100% of the time.  There is no fixed size I would buy on this trade.  I would make a conscience decision as to an amount that I would hold as a core as long as it held above 20.40 and continued to maintain an uptrend for the day.  If I viewed there being a large amount of protection below 20.40 I might buy significant size in order to take advantage of a quick 15-20 cent pop after the breakout.

If you only buy one lot on the breakout or fail to get long you can buy on a pullback to the breakout price or if EP were to consolidate above the breakout price for more than a few minutes.  Since the breakout occurred in the first 30 minutes you do not have to wait for a significant amount of time for it to hold above 20.40 before buying shares.

There are two short trades I would consider making.  If EP opened right at the prior day’s 20.40 resistance I would get short for a quick drop out to the 20 level.  I would cover immediately if the 20.40 level lifted and get long.  This can be a very tricky trade if it occurs the moment the market opens as liquidity may be light, so it is paramount to play defense and exit a losing position quickly.

The second short trade would be if EP moved very quickly from 20 to 20.40 right as the market opened.  I would take this trade under the theory that a fast move up to a significant resistance level from the prior day would be met with some sort of retracement.  If I were lucky I might even catch a move all the way back to the 20 support.

I WILL MAKE A VIDEO SUPPLEMENT FOR THIS BLOG TO FURTHER OUTLINE POSSIBLE TRADING SCENARIOS. IF YOU HAVE A QUESTION PLEASE ADD IT TO THE COMMENT SECTION OF THIS BLOG.