Check out these trades we made this morning on GameStop (GME) Restoration Hardware (RH). (April 03, 2019)


I want to tell you about what we did this morning. Our members had a live training session this morning; 9:15 this morning we traded the first hour of trading. I want to show you a trade that we did, I will actually show you two.

The first thing that I did this morning was, look at the news. The one thing that really caught my attention was this big earnings miss on GameStop ( NYSE: GME ). They basically said things suck all around but we do have a plan to make things better. Of course, having a plan to make things better when things really suck all around isn’t generally enough to get the stock moving up. In this case, all it did was just drive the stock down another 12 percent at the open.

When I see this kind of move down on earnings, particularly when the stock has already been discounting in some really nasty earnings, there had already been over a 10 percent, I guess over a 15 percent pullback from this last high. So the stock had already sold off quite a bit and now it is down pre-market. So it’s opening like 26 percent below here, below this level. That is kind of a big deal. And so what I look to do is fade that move; the first thing in the morning, I don’t like to buy this stuff pre-market but I will buy it pretty much right at the open if the stock shows me that there are buyers coming in; I don’t want to be the only guy.

In this case, this is what we did: Here’s a 15-minute chart, I can even take you down to the 5-minute chart. I was telling our members, and a lot these guys made this trade in real time, wait until the stock broke out above $9.00. It was trading down here 10 cents below an obvious resistance level of $9.00. Meaning if the stock broke ABOVE $9.00 that’s an indication that buyers are coming for the stock; you can even see on the 1-minute chart what I am looking at here.

So we are into the stock at $9.00, you will notice this line here; this is a VWAP, volume weighted average price, as soon as the stock spikes above $9.00, of course, the volume weighted average price is moving up. The idea on this indicator is, it really tells you where fair value or fair price is for a stock on any given trading day. That is the level at which buyers feel like the price is cheap enough to where it is time to buy so they are buying right here. When the stock gets too far away from the VWAP, volume weighted average price, traders say, “No, no, no, no. I am paying up for that stock.”

It’s the same thing on a daily chart. If a stock is way, way, way extended above the 50-day moving average it is going to tend to stall out. Whereas stocks that pull back to the 50-day moving average, if their being bought, that is where you are going to see it.; so here on the VWAP it is the same thing. The stock broke through $9.00, ran up nicely and then never really fell back below the VWAP. It just kind of challenged it right here but, again, you see this is where buyers are coming in. And at that point, the stock is basically off to the races. So this turned out to be a pretty good trade for us; a really good trade.

The other one that worked well was Restoration Hardware ( NYSE: RH ); not as well but all you need is one on any given day. First, let’s look and see what the stock did on a daily chart. This thing got crushed a few days ago; last week it sold off. This was another one that I picked up this morning. I didn’t pick it up because the stock was rebounding. I picked it up because in a pre-market scan I was looking for stocks that had sold off the most and this was one that came to mind.

I didn’t look at this chart and say, “Okay, I want to buy this stock because it’s gone down enough.” You could have thought that a couple of days ago and that wouldn’t have worked out really well for you, so it wasn’t that. My plan was that if the stock starts moving back ABOVE yesterday’s trading range THAT is when I would want to buy this stock. Until it does that, no thank you, that’s not my deal.

So we look at how the stock traded intraday and sure enough, right away the stock gapped up and stayed up and so you go ahead and take that trade. You will see here, the VWAP indicator, again, this trade didn’t work as well but it still worked really well; people made some good money. It fell back to the VWAP, but it is still pretty volatile. Finally, once it breaks through then it never really comes back.

These were a couple of trades and all they were, were trades based on deeply oversold conditions looking for the entry of buyers. In both cases we got that.

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