ITCB was a juicy stock for day-traders just two days ago, with a huge gap-up leading to a large spike in volume from speculative momentum-based day-traders entering the market for this stock. After this, price retraced partially but showed signs of a falling wedge forming which ended up causing a break-out with confirmation by bouncing off of a recent level of support.
We will presumably see another spike in volume coming in as many day-traders will be watching this stock for another big move and surely the clear technical pattern playing out here won't go by unnoticed. Aggressive profit targets would be at the recent highs the day-traders were able to establish, after which we can scale down and look to buy a dip if there's ground left to gain.
The main reason this is a good buy is because there's a lot of unchartered territory ahead for the stock to overcome, while there's a very recent level of support that has just been tested successfully. Low risk, high reward, good probability of success.
Looking back on this, I notice that it gapped down not just once, but TWICE in the area where we'd usually be bullish. Does this ruin the set-up? Is the price action right now just market noise?
I'm definitely going to be more wary of strange gapping late after a day-traded stock since there is natural selling pressure on these stocks from the millions of shares that went long but not all of which got flushed during the high-volume action. If I held a stock like this, knowing full well most of this day-trading madness soon retraces all the way back down, I'd liquidate my position and wait for the stock to dip into oversold territory.
Because of this, it's not too strange that if the bulls don't grab a hold of the flag and run with it, different kinds of folks (both long and short) will come in and move that flag back to where it was before the madness took place.
Any thoughts, please do comment and let me know, of course!
Dougs1125
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I’ve been watching this and right now looks good to grab. Great analysis! New follower
ralphschraven
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@Dougs1125, Thanks! I lost money on this particular trade and I'm definitely contemplating if what happened next is market noise or a consequence of "post-daytrading behavior". But regardless, a learning experience also has value. Hope that like me, you had tight stop losses so you didn't get flushed too hard!
Dougs1125
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@ralphschraven, I held :0 haha. What’s your thoughts on Nikola?
Dougs1125
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@ralphschraven, no not bad. im having trouble knowing when to pull the trigger and buy man. im super hesitant with almost everything lol
ralphschraven
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@Dougs1125, Oof, same here, ironically I spent about half an hour trying to construct a video on Nikola and my thoughts, but I was too unsure of what was going on and didn't feel like I knew enough to post the idea. This is just a technical analysis that you can extrapolate over any amount of assets, but Nikola is a stock that requires fundamentals to be traded properly (or at least it does in my book).
I don't think being picky and setting very high standards is bad. I don't touch NIkola because I don't know enough about it; I don't even know enough to comment on it. A strong quality, I think, for a trader is to not be very sensitive to sunken cost bias and "let it go" after just having spent time on it.
Of course, hesitation is a different story; that's more of an "I don't know if I should or shouldn't" rather than "I tried it, and I can tell I don't know enough" or "I looked at it, and I can tell my verdict lacks the conviction to take a position". I think hesitation beyond the natural need to sit and think on it before making a decision is harmful and could come from a few things, such as not knowing how much you're willing to risk, or not knowing how confident you are or need to be in order to make the decision.
Wish you best of luck in this, and I'll admit, I hesitated for a second but decided against commenting on Nikola because I only picked one EV stock that I read up on the full 100% which is Workhorse, if that flops it flops and I'll hold it till bankruptcy, although I am extremely bullish on it and obviously wouldn't invest if I thought it was a likely outcome.
ralphschraven
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After doing a little more thinking and experimenting with these types of stocks, I have changed my outlook in a few ways on this:
- Every reaction in the market is an overreaction. This alone is not a trading strategy, because timing when you hit the "over" part of "overreaction" is difficult. However, it is useful to keep in mind for a second as we add some more points...
- The earnings or news catalyst folks may have been early to react to some type of news or an earnings report. The stock screener folks with their relative volume and gapping screeners then react to the fact that this stock is, for whatever reason, catching some serious heat even before the bell rings.
- Rather than a serious bull run, the pull-back after the insane overreaction by aforementioned folks, who profit off of each other from this legal intraday pyramid scheme called "momentum stock day-trading" which I don't necessarily object to, is so large that it's quite clear we've reached the peak of the hype and we're ready to sizzle out now.
- Any indicator or pattern is subject to context. Resistance levels can mean the market "hesitates" for a moment before crushing to new highs when the move running up to it is strong. It can be a reversal pattern if the move is weak relative to the strength of the resistance. It can mean absolutely nothing if it's simply not a relevant level at the time. The same goes for RSI, the same goes for anything. It can mean various things depending on the circumstances. We only gain useful info from these patterns or indicators if we interpret those circumstances properly.
- The falling wedge is obviously a "bullish signal" which should then be compared with other elevating or deprecating factors. If a stock has a very strong bullish sentiment for whatever reasons, and you see a falling wedge, you may consider this is the start of a big momentum play which may benefit from intense speculation such as buying calls (since we have a strong bias related to the time frame in which strong price action will occur).
- Obviously, if your stock is crap, and it's already known to be sizzling back to previous levels after a day of monkey madness from momentum day-traders, a falling wedge is not the hail-mary reversal pattern you've been waiting for!
- Just like support and resistance and RSI often indicating a slight pullback or some hesitation instead of a reversal when the indicator is not that strong in the given circumstances, a falling wedge may indicate a small pullback followed by a period of consolidation rather than a bull run if the other factors at play are lightly bearish. That's what was going on in this case, and considering that, the technicals make a lot of sense.
TL;DR it's not market noise, but rather, an incorrect interpretation of all the factors at play that lead to a very interesting learning curve behind this trade analysis. If you read the entire thing, chapeau and I hope you enjoyed it!
I'm definitely going to be more wary of strange gapping late after a day-traded stock since there is natural selling pressure on these stocks from the millions of shares that went long but not all of which got flushed during the high-volume action. If I held a stock like this, knowing full well most of this day-trading madness soon retraces all the way back down, I'd liquidate my position and wait for the stock to dip into oversold territory.
Because of this, it's not too strange that if the bulls don't grab a hold of the flag and run with it, different kinds of folks (both long and short) will come in and move that flag back to where it was before the madness took place.
Any thoughts, please do comment and let me know, of course!