A Trade A Day

First an update on my trades. I’m staying with EBAY, CTSH, and AER. Despite the weakness in the market, I think these trades all still look good, but the market’s trend is going to determine whether they end up profitable.

Speaking of profitable, I took partials on TIVO couple of days ago. My stops are at breakeven currently. If TIVO can consolidate and move over its 200 day SMA, I’ll move my stops up.

ROST has dropped too far and no longer has a valid formation.

Now let’s look at one of my favorite strategies, the bear trap. Simply defined, a bear trap occurs when a stock is in a downward trend, and the next day the stock gaps open above the high of the previous day. There are a couple of traits that I have found, that make bear traps work really well.

1. The stock should have closed lower for each of the past three sessions.
2. The stock’s decline should look like it’s accelerating.

Now looking at AHM, I think this is a good bear trap candidate.

Firstly, the stock has finished lower the past three sessions, and the decline looks to have accelerated. If you look at the stock on a weekly chart, it also is sitting on its 200 day SMA.

What needs to happen now is a gap up tomorrow. Obviously I can’t tell if this is going to happen. But if you want to see what the action might look like. Check XMSR on , the day I was stopped out.

Now, the ideal situation is to have a gap and then some consolidation like the XMSR example. The bear trap is one of my favorite setups and when I can catch them, they are consistent winners for me.

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