Good evening StockBandits!
A morning gap to the upside set the early tone today, and very quickly we saw the DJIA sitting on a triple-digit gain. Additional strength kicked in during the next 15 minutes, taking the market to the same levels where it ultimately finished the day. We did see the morning highs get cleared in the early afternoon, but the indexes backed off slightly into the closing bell after the S&P 500 ran into resistance at 1113 and the DJIA found resistance at the 10,500 area.
While today’s action was undoubtedly positive, we are still in a trading range. The fact that we have seen the buyers step in to produce a multi-day bounce back up to the upper end of the range is a reminder that the bulls are still in charge, but a close in new high territory will be needed to truly put an end to the range. Until then, I’m keeping my timeframes short for new plays.
Please leave your comments and/or questions below if you have any, I always enjoy the interaction.
Here is tonight’s video:
The Bandit Broadcast Video – Click to Watch!
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Video Stocks Discussed: VMC, JEC, MDR, JRCC, ACI, NANO, PCP, WLL, H
Swing Trading Candidates:
NONE TONIGHT
Bullish Watch:
ACL, PCLN, HEAT, NANO, HNT, LFT, TSTC, NUAN, GSIC, V, CLF, MMM, ADI, LZB, PCP, FDX, DIS, NTAP, WLL, CREE, IPI, H, AIPC, INCY, JDAS
Bearish Watch:
WFMI, VMC, GMCR, FLR, CRZO, ESI, JEC, MDR, JRCC, HAL, ACI
The Hit List will be coming out soon with discussion on open positions and swing trade stops and targets, so be sure to watch for it.
Jeff,
I have a quick question about price movement on small bid sizes. Here is an example:
Say you have a stock, XYZ with a spread of 37×39.50, which seems like a pretty wide spread to me. XYZ opens at 39.50, then a 400 share size goes through T/S for 37 and the price is now 37.
I am lost on this and am polishing up on my Level 2 and T/s interpretation. Any help on me understanding this? Thank you…Jim
Hey Jim,
Looks like in your example you’re referring to a very wide spread ($37 x $39.50 = $2.50 wide), and yes that is extremely wide. If I saw that, I’d consider 2 things:
1. Is this an NYSE stock which simply hasn’t opened for trading yet, as I would expect the spread to narrow immediately once there is activity.
2. Is this simply a very low-volume stock which I need to stay away from due to the lack of liquidity (wide spread).
As for Time & Sales, the way I use it is more for the rhythm of the trades. The faster that ‘prints’ are coming through, the more active I know the stock is. So the rate of new prints is one thing I watch.
Another is yes the price, and more specifically, which side is printing more frequently – the bid or ask? If the bid is getting hit consistently, I know there is a lot of market selling, and vice-versa if the offer (ask) is getting hit consistently (market buying is taking place). What this does is help me to gauge the momentum a little better.
So for example if I own XYZ and it has been running quickly higher and then I notice the Time & Sales is starting to slow down, I may take that as a cue to book some profits and start to lighten up as the momentum slows a bit.
Does this make sense? Does it help to clarify?
Jeff,
Thank you for the quick reply. Yes, I understand what you are saying. This is a low volume stock, so very open to market maker manipulation, right? In this example, let’s say there are trades going through on the ask in lots of 1000, then out of nowhere a 200 share bid for 37 goes through. So, from being hit for larger size on the ask, to a single 200 share hit on the bid moves the price 2.50. I have seen market makers fire off decoy sales to trigger automatic stops, etc…so I guess I am asking if that is all this could be, but yes, I am confused. Jim
Yes Jim, the lower the volume the more easily it can be manipulated. Basically anytime I see a stock trading that thinly, I’ll leave it alone entirely as I know how bad it can hurt to get stuck in a stock like that without adequate buyers/sellers to execute an exit order against, but also when the spread gets that wide you’re facing a large loss if you sell at the market.
I figure there are too many stocks out there with adequate liquidity, so I only want to focus on those.
Make sense? If not hit me back and I will try again!
Yes, affirms my thoughts. I was just wondering how the small share size can move the stock after all the larger sizes on the ASK. I am having a hard time getting my mind wrapped around that specific situation. You have thousands of shares hitting the ASK, then 200 or shares will move the price on the BID even though the ASK volume has been significantly more in lot size and # of trades. If you can touch on that specific point I will leave you alone..lol Thank you! Jim
Alright, let me try to explain it this way…
The size of the trade has no impact, believe it or not, as it is the best bid and best offer which matter most. It could be a $10 wide spread and a 100-share trade could go off and “move” the stock that far. So the bottom line is that it’s really misleading to see what appear to be ‘large’ moves in these thinly traded stocks, when it may have only been a very wide spread which caused price to change. Liquidity is everything, and by that I mean ample bids & offers at nearly every price level.
Does this help?
Yes…thank you for your patience with my question. I keep a watchlist on all types of stocks, including thinly traded so that I can learn from all types of price movement. Thanks again, Jeff….: )
Anytime Jim!
I’m always happy to help out and am glad you are posting questions here – this is the place!