Special Situations
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Tom Ventresca MarketEdge.com |
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Smart money shows it hand long before the news hits the street.
Smart money typically tips their hand through their buying and selling activities. This unusual trading activity more often than not can be spotted on a stock's chart long before the news hits the street. There are several chart formations that reflect this abnormal activity with the most common being the following: Up/down gaps, stocks within one point of a valid support/resistance trend line, volume surges (greater than 200% of the daily average) accompanied by a 5% or greater up/down price move and stocks that are making new 52-week highs/lows. Savvy traders who are aware of these formations have a tremendous leg up on the crowd and thus can stay way ahead of the game.
Stocks With An Up Price Gap (Bullish): An up gap occurs on a stock's chart when the opening price is higher than the previous day’s high. In order for an up gap to occur, an abnormal influx of buy orders exceeding the available number of shares for sale must exist indicating that demand far exceeds supply, a bullish condition.
Stocks With A Down Price Gap (Bearish): A down gap occurs on a stock's chart when the opening price is lower than the previous days low. In order for a down gap to occur, an abnormal influx of sell orders exceeding the available number of shares to be bought must exist indicating that supply outstrips demand, a bearish scenario. It should be noted that in either situation, stocks have a tendency to 'fill the gap' before continuing in the direction that caused the gap. Therefore, it is a good idea to wait a few days after a gap occurs before initiating a position.
Stocks Within One Point Of Support (Bullish): Stocks whose prior day's close was within one point of a support trend line. This is a notable condition for two reasons. If the stock holds above the trend line, it is a good entry point for initiating a new long position. Conversely, if you are long the stock and the trend line is broken, it is a warning that the prevailing trend is reversing and that the position should be closed.
Stocks Within One Point Of Resistance (Bearish): Stocks whose prior day's close was within one point of a resistance trend line. This is a notable condition for two reasons. If the stock stays below the trend line, it is a good entry point for initiating a new short position. Conversely, if you are short the stock and the trend line is broken, it is a warning that the prevailing trend is reversing and that the position should be closed.
Stocks Within One Point Of 52-Week High (Bullish): Stocks whose prior day's close was within one point of its previous 52-week high. This is a bullish situation in that the stocks that are making new highs have a tendency to continue to make new highs as the company's fundamentals are obviously improving.
Stocks Within One Point Of 52-Week Low (Bearish): Stocks whose prior day's close was within one point of its previous 52-week high. This is a bearish situation in that the stocks that are making new lows have a tendency to continue to make new lows as the company's fundamentals are deteriorating.
Stocks Whose Price Is Up 5% And Volume Is Up 200% Over Daily Average (Bullish): Stocks whose prior day's volume was more than twice the daily average and the stock closed up 5% or more above the previous day's close. This is a bullish situation in that the stock is showing abnormal accumulation.
Stocks Whose Price Is Down 5% And Volume Is Up 200% Over Daily Average (Bearish): Stocks whose prior day's volume was more than twice the daily average and the stock closed down 5% or more below the previous days close. This is a bearish situation in that the stock is showing distribution.
Market Edge (www.marketedge.com) reports all of the stocks that fall into the above categories on a daily basis. The report is called 'Special Situations' and is located in the Analysis Tools area on the Market Edge home page.
Tom Ventresca has been Computrade’s Director of Research since its inception in 1991. Prior to founding Computrade, Tom spent 12 years in the securities industry holding several positions including broker, sales manager, bond trader and market technician.
1947: Born-Pittsburgh, Pa.
1965-1969: Pennsylvania State University, BA degree.
1970-1978: Builder
1978-1990: Securities industry. Firms included First Southeastern, E.G. Francis, First Southeastern, Smith Barney and Oppenheimer.
1990-Present: Computrade Systems, Inc. Co-founder and Director of Research. Computrade is the developer of Market Edge, a comprehensive, computerized research web site, which is accessed by individuals, brokers and institutions throughout the world. As Director of Research, Tom writes Market Edge’s ‘Market Letter’ and ‘On The Edge’ plus the Dr. Market Edge series. Both the Market Letter and On The Edge provide in-depth market analysis based on three market timing models that he developed. Tom also has recently finished a new book, ‘Trade Like A Pro’ which is a systematic, disciplined approach to the stock market. Based on technical analysis, this book addresses five topics that he believes are critical to having success in the market. These subjects include market timing, stock selection, timing entry and exit points, protecting positions and money management.