Tuesday, October 26, 2010

GMCR (pivot-entry reached for short)

right-click and enlarge chart in order to view properly

Getting back to GMCR again, the stock this morning has reached my pivot-entry for re-loading short. Should it manage a close above 32.44, on rising volume, I will be stopped-out for now - whereas a close below 32.44 (the lower the better) implies that gap-resistance is still maintained and we can focus then on what might happen again below.

I call this a pivot-entry (re-entry in this case), because now (32.08-to-32.44) is the level that defines whether or not I am on the right side of the trade (the 50-day moving average today is ~32.08 and the lower gap-level from the breakdown is 32.44, from September 30th).

Sure, a position being above or below water in your account is a good measure of whether we are on the right side of a trade, but in fact we could be profitable on something and ultimately be in the wrong place (give it time, give it time). When and if the name reaches a key level (in this case, GMCR has poked above the 50-day MA for the second time since breaking-down AND the stock reached the lower-end of the gap, 32.44). Note that some will always point to a stock filling a gap, but in fact the best shorts only reach into the lower-end of a gap before losing the ability to continue bouncing).

Important: Over the weekend I mentioned (re GMCR) that when a leadership stalwart breaks-down hard and initiates a new downward trend, it is not until the 3rd or 4th jab above the 50-day moving average that it is optimal for entering short (it usually takes time to kill a giant; for reference, scroll down to the GMCR paragraph here). Understand then that I am cheating now, on faith that GMCR is going to lose steam at this area, therefore I must keep stops tight and acknowledge there is a good probability that A.) GMCR may in fact survive as a leader and in that case I have no business shorting; and/or B.) The likelihood the name will ultimately poke above the 50-day a third and fourth time down the road are strong.

In other words, I am getting ahead of the more optimal trade, as we generally need to give a falling giant more time before coming in with swords. I will do this at a key entry point, however, because I will know very quickly if I was too eager (I'll take a quick loss if the name survives and closes >32.44, while I can consider myself on the profitable side as long as it does not). Therefore I've got an enviable risk vs. reward trade at hand, beginning now - assuming there is no take-over or other news which gaps this one through my heart.

As always -don't do what I do, especially when I am discussing shorts. I lose money on something every day. If you play along with GMCR short because of me, it will most surely occur for me with this one!

Try this instead - Follow Centrifugal to fade trades in real time

Beast out.

Oh, I should add that time-of-day is meaningful to my entries. If this were the end of the session that GMCR had managed to recapture the 50-day and then the 32.44 lower-gap, I would hold off entering at that point. I always give more credit to the end of the session that prior to 11AM est, certainly.

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