Wednesday, May 26, 2010

Hedge Fund Favs

Here's a little nugget I culled from one of the Schwab news feeds that scroll by during the day as I watch my portfolio value wobble like a drunken sailor. Some intriguing accompanying metrics to the news item may stimulate you to conduct further research to create a trading watchlist. They all like Apple, whereas I have focused on BAC for some time and have found it to be a great technical performer when used in conjunction with Project Z.
I was amused to see XRX new to the list as it's been one of my favorite daytrading and swing trading "niche" stocks for years. I guess the secret's out. When the specialists were alive and well you could just watch the 2 minute bars for episodes where the stock would drop .20 on virtually no volume and then shoot up .30 within minutes. This drop and pop was the specialist in action and savvy traders just kept a rolling entry stop set at .15 below the current bid. Once the order was filled (typically once a day, sometimes more) another order was immediately generated to exit at the previous "squat" level. These followup orders often executed within a few minutes and generated a nice little revenue stream. This is not urban legend. I executed this trade 204 times in 2004, with 198 trades profitable. The specialists are gone and so is this particular trade setup. Nevertheless, there are similar setups using XRX and other low profile stocks that can produce equally attractive results. For now we'll just call this the Backup Trade, which will be profiled on the soon to be released ETF Prophet site.

The MLR Rotator is showing quite a bit more short term green than yesterday with TLT and GLD still holding positions of high rank. SMH, which I mentioned before as a potential breakout candidate, appears to be chaffing at the bit to make it happen.
Wednesday's open was jaw dropping, although the afterhours weakness on Tuesday should have forewarned you that the following open was going to be something special.
While there's no denying the dramatic nature of Wednesday's turnaround, most of the positive momentum occurred in the last hour and it's possible that at least a portion of that late push was short covering rather than serious accumulation. And while a case an be made for a technical bottom, I'm standing back for a few days before initiating new swing trades, preferring the safety of daytrading setups instead.

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