Looking for an edge on SolarEdge (SEDG)? I’ve got it for you! (November 09, 2017)SEDG
I want to look at SolarEdge ( NASDAQ:SEDG ) today. The reason is that you can see the stock is up about 20 percent on some pretty strong earnings. I just want to illustrate how you can kind of get an edge on whether to go long or short a stock like this right at the open.
SolarEdge ( NASDAQ:SEDG ); if we look at three standard deviations, that is out here, clear out here. The stock is breaking a law of physics to be outside three standard deviations. It just doesn’t stay out there for very long. This morning the stock gapped up and really, really quickly ran outside the typical Bollinger Band which is two standard deviations, right here. If we look at this on the intraday chart (let’s just go to the 5-minute chart) this is the way you look at a stock like this; there are a whole bunch of stocks these days that are doing this.
The stock gaps up, a typical trader is going to look at this stock and it gaps up 10 percent at the open. That is a pretty good stock to short. You are going to be shorting the stock right here, some of them do it just right off the bat, I prefer to wait to get some kind of direction. But you are going to see a lot of short selling right here. Look at the volume, for this stock pretty extensive, over 250 thousand shares traded. And so the stock doesn’t do like you expect it to do. Instead, it starts to move higher. Why? Well, because there is still demand for the stock. For whatever reason, earnings were real strong, okay, great. People are buying the stock. You have got people coming in, yes. I will take the stock at $36.00 because, heck, I think it is going to 50.00, so they are buying. You can see this in the trading volume, very high.
So what is happening to all those folks that shorted the stock? They are going, “Holy crap! I thought I was going to be making money on this. Now I am wondering how much money I am going to lose; I am going to cover my short.” So you have got that demand, which pushes the stock higher. Now, advantage bulls. While you are seeing the stock move you have got to be thinking, why is this stock moving up? Is it helium? Is it magic? Is it just one of those coincidences, one of those forces of nature? No! It is moving up because big money is interested in buying this stock. I have mentioned this before, when institutions are buying they don’t buy first thing in the morning and then say, “Oh, you know what? We didn’t see that thing on their balance sheet, we have got to sell this stock.”
They don’t change their minds during the day. They just don’t. So you have got a good indication that the stock is under pressure; you can be long this stock. Now you will notice throughout the midday anyway, it has traded sideways. This is why you make your most money during the first 59-minutes of trading. And then it trades sideways the rest of the day with a little bit of upward bias. This shows us that there is actually buying pressure. There is demand on this stock all the way through the day and into the close. So keep the this in mind, again, institutions, if it is really bonafide buying, they are not going to change their minds and sell this stock tomorrow. Now, if they are smart what they will probably do is not be buying right at the open, they will hope the stock comes in.
So, if the stock falls tomorrow morning and I think it is likely that it will just because the thing is up 20 percent. Don’t you think somebody with a big buy order is going to say, “You know what? I don’t think I want to keep buying up here. I bet if I just pull back a little bit we will start getting some selling from a 20 percent gain.” So if the stock starts pulling back you have got to look at this on say, a 5-minute chart, you can go out to a 15, if the stock starts pulling back don’t buy it confidently. Instead, just wait. Wait to see whether the stock finds some support, you can use pivot points, you will see different ones here tomorrow, you can get these on your charting software. If the stock finds support at one of these pivot points you are going to be able to have a pretty good entry on the stock with a stop that is just slightly below where your entry was.
Anyway, that is how I would trade SolarEdge ( NASDAQ:SEDG ). This has been a monster stock since we first started looking at the solar sector several months ago. I think it still actually has got further to go. I just showed you how to trade that. I hope it works for you and I hope you make money.