Now that earnings season is over there are some great opportunities to keep an eye out for. One area I personally like to keep track of are stocks that gapped, either up or down, and then watch for potential gap fills. Everyone knows that the market is overbought but that’s not what’s important as price action is how you make a living in this business.
I would venture to guess that millions and even billions have been lost since March as speculators try to “sell the top” only to have their assets handed to them as the market continue to move higher. One would be best served to pay attention to price and look for levels of support/resistance to be broken and then confirm with other indicators. I’ll be watching for levels of support that are broken and large volume on those breaks to confirm. Two types of orders would fire with such breaks–people getting out of their longs and people getting short. If that volume surge happens it’s still no guarantee the stock will move lower, but it doesn’t hurt.
As mentioned, fortunes have been lost trying to play the counter trend and fade the gains. The proactive traders utilizes stop losses and lives to trade another day. I prefer stops that are some variant of the stock’s average true range and that also incorporate volatility. I typically prefer a chandelier stop and they’ve served me well over the years. Here’s a few of the stocks that are on my watch list for potential shorts. I’ve got alerts set on most and will more than likely short the stock or use a high delta put if available. A word of caution about using puts though–buy enough time as to not offset your delta gains with theta erosion.
You can download the full list of stocks that have gapped up 10% in the last 45 days here.