Here’s your trade on Ross Stores ($ROST) – November 18, 2022


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I want to look at Ross Stores ( NASDAQ: ROST ) today, here’s why; wouldn’t it have been nice to have looked at it yesterday before the company reported earnings? If you bought this stock you made a boatload of money on it, right? Only if you bought it yesterday and held it over earnings.

Think about it this way, you own the stock, and the stock pops, and opens 17 percent above the close. I will take that all day long, I wish I had my entire account in there, that would make up for a lot. And even though it did fall back the stock ultimately gained 10 percent, so this was a monster move on the day. Oh my gosh, it’s up 10 percent.

You look at the weekly chart, it’s pretty extended, but yet again, this is up 10 percent. Here’s the problem (this is kind of a lesson more than anything else to newer traders), don’t ever buy a stock that gaps up 17 percent, ever, not ever, not even one time. There will be no time that’s different.

Here’s what happens, you buy the stock and you want to get into it, first thing in the morning, before everybody else gets into it, right? But everybody is already in on it. Everybody is buying at the same time you are, which is why the stock gaps up so much. The pros don’t do that. The pros see what’s going on, they are not going to buy the stock. They probably don’t even own it, they’re sure not going to buy it.

But they are going to see this demand and say, Hey man, I’ll sell you as much stock as you want, and then I will just buy it back when the demand falls away and the price comes down, and then I will make a little money. That’s called a short sale.

That is what professional traders do in instances like that. It’s nothing personal, they don’t look at the people that are buying the stock that they are shorting as knuckleheads or anything else. They just look at it as demand, like, I’m just filling demand.

And then when the demand goes away, the stock comes down, then that is when I will get the supply back that I strung out there. So the lesson of the day, boys and girls, is, when you are late to the party don’t go to the party. Because you are only going to wind up with a bad hangover.

Now, what do we do? You look at this stock through just one of the lenses that I have during the day, where I look at the volume-weighted average price, we’ll look at it on a 15-minute chart. Right away, this stock was in trouble, right away. It’s a huge amount of volume here, on this bar, this again, like 5-minutes into the day, and you’ve got close to a million shares already traded.

Let’s say you are buying this stock. By now, you need to figure out what’s going on. You don’t even have to look any further than that. You have got to look at this and say, Alright, I’m clearly wrong. The stock has been open for 15-minutes, and if this thing was going to keep going up it would have by now. I thought I was going to be getting in early because I am naive and I don’t really know how to trade but by god, I want to get this stock because it’s up so much.

By now, if you’re not looking at this and saying, oops, then you really need to try and figure out another line of work. By now you are definitely out of luck. So this stock, 15-minutes into the day, is down only a little over 3 percent. But wait, there’s more, here’s the rebound, now I’ve got to buy it. Well, that didn’t work either. By now you can see that the volume-weighted average price indicator is the ceiling for this stock, we want it to be the floor. And so the rest of the day the stock just keeps going lower, and lower, and lower.

So the moral of the story is this, don’t buy a stock that gaps up 17 percent or you are liable to lose 10 percent before the close. And the other lesson here is, as soon as you start to doubt yourself on something like this, you need to get out. You can always get back in but there is no room for doubt in trading, if you are in doubt, get out.

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