Warning: Responsible Traders Only

  • Posted by
  • on February 2nd, 2011

Slow day ahead?  Depends on your perspective.  Take the huge move in which stodgy blue chips exploded, combine that with virtual weather-driven shutdowns across half the country, and it’s not hard to a picture a low volume, small range affair for the indices.

However, that very recipe could lead to fireworks in smaller stocks that don’t always get noticed.  While portfolio managers allow yesterday to sink in and plan their next moves, traders armed with a powerful tailwind will have little trouble generating big moves in sub-$10 stocks typically off the radar.

These stocks are not my usual game, and I don’t track them daily like I do the 800+ in my mid and large cap universe.  But I’m a trader…it doesn’t take long for me to analyze a setup, determine the reward:risk, plug it into a volatility-based sizing algorithm, and wait for a chance to strike.  The moves can be outsized, and have a built-in time stop because I won’t carry these onto my sheets tomorrow.  Luckily Zortrades provided a good place to start one’s homework for those responsible enough to handle the risk(I bumped the volume hurdle to 500k and added some volatility filters but make this your own).  I’ll run my own scans in Alphascanner to see what other candidates may be ripe.

Market participants have three choices: fade, follow, or step out of the way.  I’m not ready to fade the big wave, but I find it a terrible time to follow it.  So I’ll step aside for 1 day, and shift my focus from big cap land to the admittedly fleeting universe of small caps.  As long as news doesn’t set up a gap and crap, the potential is there to capture a quick move driven by the rising tide of price hounds.  At 50% cash, I expect more of these stealth missions while the market decides whether 1300 is the beginning or end of the Feb 2011 rally.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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