In benign momentum markets such as the one we have enjoyed for the last week a lot of break-out moves start before the alert. Two of our day-trade strategies, base and break, and The Indy, were created to take advantage of this phenomenon. A quick glance at two triggers from last night’s newsletter in $OPEN and $YOKU.
We wrote in yesterday’s newsletter “OPEN 85 not bad for a squeeze — type of stock that sets up before on base and break/Indy” and indeed the set-up before the alert today — on the lift-off from the 9EMA near the open 1 point under. Best way to catch a move like this is if you were stalking it — yet another reason why we like small watch-lists.
YOKU 37.5-37.7 we wrote yesterday to look for set-up which was a good spot to enter for a quick 1 point run. Another entry was off the 3rd/1 minute bar off the open gap. You will see this pattern quite often in benign momentum markets — gap up, 2 x1 minute bars that are fairly tight, and 3rd bar lift-off. The highs and the lows of the first 2 bars were within 25 cents which is great risk/reward. When you see a tight stop like that buy the 3rd bar that takes out the high with stop on any reversal into new low.
As extended as the market is right now there are some very good momo moves for day-traders. We’ve had two extremes since the beginning of the summer — complete bear sentiment where every rip was faded and now the complete opposite in a true momentum tape. It should be an interesting summer.