Monday, October 29, 2007

Trading Q Gaps (part 2)

This post is a continuation of How I Trade, begun on Saturday.
The Qs gapped up at the open today, repeating Friday's jump. The difference today was that we got a trap door set up. I have included an great annotated chart of the "trap door" (lower chart) which I "borrowed" from cucca. The top chart is again from my Schwab SSPro platform, set to 5 minute bars. I have the MACD single line moving average turned on (signal line), along with the parabolic SAR, the pivot points and an 8 bar MA channel that I use for confirmations.
After the initial gap up, The Qs retrace on an engulfing bar, then ratchet to a new high in the next 10 minutes, before beginning a halting decline. On this chart, both the parabolics and the signal line suggest a short sale at 9:55am. A short sale is also suggested by the bounce off the R1 pivot.
Since I'm unwilling to accept these signals without confirmation, I check out my handy TICK and NYAD charts.
The 2 minute NYAD stays glued to the PP prior out of the gate and then does a little hang-dog at 9:50, followed by a turn down at 9:55. Meanwhile the MACD histogram is decidedly negative out of the gate and remains well below the zero line, except for that little game at 9:50.
For the final confirmation, the 2 minute TICK also stays glued to the PP pivot, showing narrow bars and little inclination to rise. The TICK break actually comes at 9:50 and the move is down. The MACD histogram is well below the zero line at the open and looks poised to stay there.
Adding it up, I have the following indicators all confirming the same signal:
On the price chart: MACD signal line, and parabolics.
On the TICK chart: pivots and MACD histogram.
On the NYAD chart: pivots and MACD histogram.
I gird my loins and sell naked the Qs near 54 calls.
I exit 25 minutes later when the Qs kiss the PP pivot for the second time in 10 minutes.

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