Did you see the volatility pop on EYES? Here are three tactics for trading it. (February 28, 2015)
EYES, Second Sight Medical Products ( NASDAQ:EYES ). Here are a couple of things on this; the stock had been trading in a volatility squeeze for a while. The stock gapped up and closed at 11.20. That’s above the upper Bollinger Band, so that’s a sign of strength, that’s called a power move.
This is what it looked like, look at the massive volume here, this is institutional buying, you’re not going to get over 5 million shares traded by Jethro, Billy Bob and Jake while they’re not out fishing for largemouth bass, this is large institutional buying. So you’ve got the stock that breaks out like this; there is going to be a continuation, that’s just the way it goes.
So you get the continuation here on the second day and then you say, “Oh crap, okay that’s it, that’s the end of that thing.” Not necessarily, as we can see here. But here’s how you trade the last part. The first part is when you see this, when this comes out on your scan you want to be long this stock, particularly if it trades above the high of 11.64.
So you can set your alert here, you see this, you say, “To bad I was working today, I didn’t see this move. But this stock looks like it’s going to continue, so if it starts trading above 11.64, which I think it will, then I’m going to go ahead and buy some stock.” So you set a price alert for, I don’t know, 11.65 so you can have your attention drawn to it when the stock starts trading above that level. If it trades above that level great you’re in.
Boom! The next day you’re in, 11.65, yippee you’re up 20 percent, so you’re still long the stock, whatever. I’m not talking about the third day now; I’m talking about the way you get in on the second day here. What you’re going to do with this depends on you. So we’ve got the third day now, the stock trades down and so some, a lot of the folks that bought here are saying, “I got to get out of this thing, it’s time to dump it”.
Fine, so the stock pulls back but it’s actually an inside day, you see, it’s an inside day. This was the prior open, this was the prior close, the entire trading range here is inside the prior range between the open and the close, so it’s an inside day it marks indecision on the parts of bulls and bears.
So what can you do? So we’ve had one trade, these are two different trades but it’s the same technique. The first one is you missed the first day buy; you didn’t mss the second day. You set your price alert, stocks up whether you’re in or out at the end of this; frankly if I’m trading short-term like this I’m pretty much out after 20 percent. I would have been selling in to the end of the day just out of a lack of greed. And then on the third day this pulls back.
So now lets say you missed these first two days, you’re new, you’re just coming in to this now. What the heck am I going to do? Buy at $12.00? No, actually that’s not the trade, the trade is to look at the high, again 14.75, set your price alert at 14.75, 14.76, 14.77 something like that. If the stock continues lower then you’re right not to buy it.
However, what did it do? It gapped up slightly and then ultimately eclipsed this last high; game on, bulls are in charge again. Lets say you’re up 10 percent; you could say, “Well why not just buy at the open Dan?” Well, if I could go back in time I would buy at the open; actually I would have sold everything that I own, raise cash and bought right here, if I could go back in time.
But I can’t, I don’t get to do that, I have to trade what’s in front of me. So I look at these first two moves and I’m thinking, okay, now this third move I’ve got to really be careful of this stock. You don’t want to just go pile in because it gapped up a little bit, you want to wait for clear evidence that the stocks going to continue to move higher. Now hopefully here’s your third trade, the first trade is I missed the first day; I’m in on the second day.
The second trade is, I missed these first three days, I want to be in on the fourth day; and there you are. The best trade is if you are already long and you see this move, and you start to take a little bit off the table but not everything. You sell it in scales and now you’re up on some of your stock up basically almost to double. So you were right to let some go, you’re right to hang on and if the stock just continues doing what it’s dong then it’s all right to hang on.
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