Twenty-two Names

Out of a couple hundred active stocks today there are 22 names sitting on 60 day LR2 lines. This means they’ve had a 2 standard deviation move down and should return to the middle of their price channel. Half the names line up cleanly on all three (30/60/90 day) time frames. There are also several (not as clean) at the 50day sma. This is a clue that we either resume business as usual tomorrow, or early next week, or this is a major trend change. From this scan there are few juicy shorts other than these same names. Often the best swing shorts are stocks at their lower channel line.

We’re looking for a return into the channel or acceleration out of it. It’s make it or break it time!

See Chart Gallery

Cleanest symbols: CAKE HIG LEN LNN LVS LZB MA OII TNA V ZN
50day smas: DVN EGO FCX OII TNA

Examples

Here you can see all 3 time frames line up: 90bar 60bar 30bar

V didn't close cleanly on the line, but that's one fat hammer on x2 avg volume. Looks like a strong reversal might come.

PPT Day Characteristics

These moves typically occur after 2:30pm Eastern while the market is near a new low or breaking point, with a relatively high VIX.  Another characteristic is a large NYSE Adv/Decl negative ratio.  One that is negative 10:1 going into lunchtime typically assures a weak close.  Ratios of 3:1 negative aren’t what you want. They are easier to manipulate by weak bulls. You want a big scary ratio. It is these negative internals that can clue you into the probability of a PPT push.  A big push on a big negative internal is the tell. To instantaneously swing the market around on these days takes a massive amount of concerted capital.

If you watched the market every day last year you know what this looks like.  Using 5min candles on your favorite index you will see an immediate and massive full body candle, sometimes eclipsing the entire day’s range in minutes.  There is no mistaking this move.  It’s a wide-eyed holy crap moment!  After this massive push the market will typically close near the high of the day.

Here is a 15min chart of the SPY from last March–somewhat similar to today.  This is what a breakout looks like:

The PPT pushes are preceded by doom and gloom breakdowns.  These volume pushes fail to buoy the market after a few days.  In some cases it’s a rinse-wash-repeat move over the course of a few weeks.  Learn to anticipate it, regardless of the mechanics of why the push comes.

Often a panic sell-off precedes a PPT push, which breaks down into orderly selling, which causes another PPT push.  Watch for one this week or next week, possibly mirroring this move from last November:

There’s a similar feel to this month, except we’re missing a second PPT push:

Taking the Trade

The key to a PPT day is entering on the first push of a massive volume breakout.  You have to be prepared to enter in a matter of seconds.  That or have a resting buy/stop order sitting above a resistance area on your favorite stock.  Look for an entry that won’t get hit by a false probe.  During these moves it usually doesn’t matter which of the day trade stocks you pick–they all go up.  Some potential stocks right now are FAS MA FSLR GOOG BIDU ICE CME GS and other big liquidity names.  Trade what you know.

A good risk/reward setup are breakouts from tight consolidation ranges.  If you anticipate the move place a market buy order slightly above the range.  When the order fills put in your max loss stop and then be patient to the close.  Another method is to wait 10 minutes after the fill and then put your daily profit stop in.  If the entry was golden (profit stop doesn’t hit) exit manually near the close. It’s possible to get several months of profit off these extreme moves.

This chart of ABK from last year is a great example.  In anticipation of a PPT breakout a rested buy order above $8.70 was placed.  Going big, say 10,000 shares, a market order is a must.  The fill price isn’t as important as catching the momentum.  There is a saying, “Don’t be a prick over a tick.”

Conclusion

The essence of this strategy is catching a home run with a low risk entry.  Holding into the following day is a personal risk preference.  However, using margin hoping for continuation into the next day is very risky.  Follow through days have been trending down for decades now, and are especially thin today.  Hoping that will happen often eats through the profits on a perfect trade.