I want to discuss two stocks today that touched important longer term levels.  There are several ways that an intraday trader can use an important longer term level.  The first is as a price target.  If a stock has been trending down recently and there is a major support level ten points lower then you can focus on trading that stock with a short bias until the stock reaches that price or until something changes dramatically on the tape.  The second way to use an important longer term level is as a price where a stock can have a powerful intraday reversal.

The two stocks I will discuss both hit major longer term levels today and reversed powerfully from these levels.  A skilled trader who had these prices in mind prior to the market Open today would be in a position to capitalize on both the moves to and away from these important prices.

RIMM

RIMM has been very weak since it reported its earnings two weeks ago.  Many market players have been looking at the long term chart in RIMM which clearly identifies 65 as major support.  I personally was using it as a downside target after viewing how weakly RIMM traded after disappointing the Street.

RIMM caught my attention yesterday when after gapping up on an upgrade by Credit Suisse it sold off all afternoon.  It was a likely candidate to breakdown today.  My plan was to get short on any signs of weakness and add to the position below 65.  RIMM showed some weakness right on the Open so I got short.  When it dropped 65 I shorted some more.  When it traded above 65.10 I covered my short and watched the tape closely for a place to enter on the long side.

Why would I look to get long a stock that has shown weakness during the past eight trading days and traded down sharply on today’s Open?  The answer is that I am considering others who are watching the stock.  There are many people who are still bullish on RIMM and were looking for a favorable entry price.  When RIMM traded down to 65 today and failed to breakdown that was a greenlight for many to get long.  Also, technical traders will get long a stock when it fails to hold below a major support level.

It was worth bidding for some RIMM at 65.10 on the failed breakdown because other market participants would most likely drive it up to 66.40 where it had major resistance the prior afternoon.

AIG

AIG was trending down until last Friday when it reversed on heavy volume closing around the key 43 level.  This morning AIG gapped up above 43 and had a strong opening drive bringing it close to 45.  The next major level to the upside was 46.  Many traders, myself included, were using 46 as a price target this morning based on AIG’s recent strength.  46 is an important level based on the price action following its two failed attempts to close above 50.  Each time it has gapped above 50 it has reversed hard putting in daily lows around 46.  Today, when AIG reached 46 it failed to hold a bid above this level for several hours.  Finally, in the middle of the day it moved strongly above 46 to an intraday high of 46.50.  It wasn’t a particularly impressive breakout when compared to the moves earlier in the day at 44 and 45.

When AIG traded back down to 46 and dropped the bid it was a short.  My downside targets were 45 and 44.30 both of  which had offered some resistance earlier in the day.  I’ve seen some comments on our blog recently questioning why we trade AIG so often.  Many people view it as a difficult stock to trade.  From my point of view it is an ideal stock to trade intraday.  Here is why:

1) It has a very tight spread.  You never have to risk more than five to ten cents for setups that offer one to two points of upside.

2) It is attracted to longer term support/resistance levels like metal to a magnet.  This makes it very easy to develop price targets and stick with them.

3) The tape is readable.  An experienced trader can clearly identify levels where there is a lot of buying or selling and make very low risk trades at those prices.

4) It moves a minimum of two points intraday and often will trend for more than one point.  So if you get on the right side you can hold for a significant chop!

In trading just as in life you should always consider things from differing viewpoints.  That type of mental flexibility will lead to better results.

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