Good evening StockBandits!
Monday’s late-day selling carried over into this morning as a minor downside gap was followed by some additional weakness. However, it didn’t last long as the lows of the day were set about 15 minutes after the open, and from there the market never looked back. The morning deficit was quickly erased as each of the indexes moved into positive territory, where they stayed for the remainder of the session.
Today’s downside head-fake no doubt has some bears trapped tonight, as the recent V-shaped rally was seemingly set for at least a short-term pullback after weak finishes Friday and Monday and a poor start today. Follow through to the downside failed to unfold, and instead we saw the indexes tack on gains just shy of 1%. We’re now back facing some important levels, with potential to climb back above the prior bounce highs. The RUT and DJIA are both not far from 52-week highs, but they’ll need the participation of the NAZ and S&P 500 to make meaningful moves going forward (as usual).
Despite how far this market has carried in just two weeks off the recent lows, tonight there are a lot of charts exhibiting bullish behavior. But just as it wasn’t advised to short two weeks ago after a sizeable selloff, this is an equally difficult spot to be making new buys. Some stocks have great setups with risk/reward that justifies long-sided entries here, provided that risk is kept in check just in case we see selling return. Overall though, it’s a trader’s market and we have to expect some shifts of direction while caught between the lows and highs of the past few weeks.
I’ll cover my game plan for tomorrow in the video, and as always, feel free to share your own thoughts, trade ideas, and questions down below in the comments section.
Here is tonight’s video:
The Bandit Broadcast Video – Click to Watch!
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Video Stocks Discussed: WNR, JBHT, TRN, CCL, MGA, MDR
Swing Trading Candidates:
MDR has pulled back from its recent high, and has kept its uptrend intact. Price is now resting just beneath a trend line, which if cleared at $25.10, could set this one free to move higher. I’ll be using that level as a trigger for a buy. As with all swing trades, my stop and target levels for this trade are found on the Hit List here inside the Hideout.
The Hit List is a separate post which contains discussion on open positions and swing trade stops and targets, so be sure to check it for further details on swing trades.
Jeff, I notice on the MDR trade plan the risc reward is only 1.42 times for the first target and 2.5 times for the second target. I know on day trade you like to keep it around 3 to one. I thought you felt the same on Swing trades. Am I missing something?
Also, On your swing trades. Do you ever trade options or do you always trade the stock.
Thanks for all your help.
Phil Derry
Hi Phil,
Thanks for asking this, it’s a good question. Usually I do prefer trades which are closer to 3:1 for the final target, but I felt with a pretty tight initial stop this one would still be worth taking. On the first target, it’s not unusual that I’m looking to make a little more than I’m risking (as you noted 1.42x), but for the 2nd target it typically is farther away. Another reason in this case is simply the market feels a bit extended in the short term, so I’m looking at a slightly more conservative 2nd target because of that.
Hope this helps, but if I can clarify further just reply and I’ll be glad to. Make it a great Wednesday!
I forgot to address your question regarding options. Nearly all the time I will take the common (shares) rather than options. I prefer the stock for a couple of reasons…I don’t have to nail the timing of the trade (since directional options plays also have the time decay of the premium), and the after-hours / pre-market liquidity is better if there’s exceptional pricing and I want to exit. Taking the shares does require more capital outlay, but I’m fine with that since I’m an equities trader and not one who specializes in options.
Some traders prefer options over common, which is entirely alright. Personally, I’ll take the options if I feel the options are highly liquid and if I feel there’s additional gap risk tied to the play, as that will help to limit my exposure.
Hope this helps!