Here’s how we made money on Sage Therapeutics ($SAGE) today…and how you can use these strategies to make money tomorrow. (December 05, 2019)
SAGE
I want to cover Sage ( NASDAQ: SAGE ) here real quick. This was a trade that we made in the forum today. I want to tell you, when you go into Stock Market Mentor in the trading room there is typically a lot of action in there before the opening rotation, before 9:30 starts.
One of the stocks that people were talking about was Sage Therapeutics ( NASDAQ: SAGE ). They were down on bad news on one of their Phase 3 trials; the stock is down 60 percent. Unless there is literally nothing left of the company or unless they announce that Adam Neumann is the new CEO of the company, the stock is not a zero. You go down that much, you see the stock pull down 60 percent and you have to figure that there are shorts in this and they are going to cover; the stock is not just going to keep going.
So what you do, and this is what we did, this is where all the trading action was. This is the way the stock opened first thing in the morning and then 5-minutes into the show it is up here above $60.00, it opened clear down here. It is above $60.00 and this is when we are buying this stock.
Now, a little analysis here; the idea has to be that on this first 5-minute bar, that’s the most important bar of the day. The most important bar on a big massive sell-off like this is the first one because once trading opens this will tell you whether the selling is done. You are always going to see this big massive volume spike to begin with, but the question is, what happens after that? What happens when all the initial market on open orders, meaning buy at the market open or sell at the market on the open, what happens when all of those are filled, which way is the stock going?
If the stock, after this first 5-minutes, started to go lower, like to a new low, then you totally stay away from this stock. Don’t sit there, it’s just a trade that you thought might happen but it didn’t. You don’t want to lean against it and bet on it going further. You just say, “Wow, I was looking to trade an oversold bounce and it is starting to look to me like it’s an oversold trounce, running up and then printing new lows here.” So you would totally stay away from that. Well, that’s not what happened here.
The stock trades sideways here; I know a lot of people got in it in the trading room and then the stock runs up a bit and then it actually stopped. The Nasdaq halted trading on volatility. I don’t really care that much but it seems to me that is something kind of weird. And maybe somebody said, “Hey Saul, we need to stop this stock here for just a minute because I have got to get my books in order,” or something. I don’t know, I am just pulling that out of my backside. It just seemed funny to me that I am not looking at the stock trading up in a volatile way. I am just seeing a stock that is down 60 percent starting to rebound. Hello, that’s what you are expecting.
So anyway, the stock runs up here. It stops trading for a while and then cools off and then the whole rest of the day the stock essentially traded sideways but it did get this one spurt up here at 72.71. You can see it actually stopped trading twice, one of our members got out above $70.00; I think he might have even said $72.00. So we had some good trades here on this.
I would just tell you, this is now yesterday’s opportunity but look for stocks that do this and focus on that first 5-minute bar. When you get a big massive sell-off like this just remember, there are a lot of orders behind the initial bout of trading. So what you are waiting for is an indication of which way those orders are stacked, towards the buy-side or the sell-side. You look at where the stock opened; where the stock closes at the end of that first 5-minutes and that’s your key. You are looking for this kind of move.
You are not looking for this big of downdraft here, 60 percent, you are not looking for the stock to do this, run up a little more and then just sell-off more. That is just not the way stocks trade. I could explain it in more detail why but just trust me on that. A stock that is down 60 percent isn’t going to rebound 5 or 10 percent in the morning and then sell more. Stock dynamics don’t work that way.
So you can look at this in the same way on a move to the upside. Let’s say this was a big massive rally to the upside. If the stock is up 60 percent or 50 percent wait for 5-minutes. If the stock continues lower then you need to short that stock and you keep your stop just above the opening print. If, on the other hand, the stock is up that much, closes higher than it opened and then it keeps going, frankly, you can buy that stock because everybody else is.
I hope this kind of intraday dynamics helps you; you can make a lot of money, think of it as income, you can make some good income just trading these big moves like this. You just don’t want to overstay your welcome. You just take a trade for 3 or 4 percent if you can get it and say, “Thank you very much, sir. Gotta go now, got to get to my job.”
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