Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Short Idea For Tuesday, May 4: EquiFax (EFX)

By -

Running through my scans last night I found a quite few potential short trades for this week and here's one of them. This falls into my category of an "afterglow" trade.

I'm sure everyone knows what an afterglow party is, right? It's the party after the event. These patterns have been written about before on SOH. The pattern is a trend knockout or a variation of Farley's "Hole In The Wall" where you try to capitalize on any residual selling momentum that may occur after an event such as poor earnings, a CEO sex tape involving a goat, an oil spill, and so on.

The goal of these trades is short term profit. They usually last 2-5 days, but you can trend them longer if selling is particularly pernicious.

Short_EFX

This is a daily chart of EquiFax (EFX). It currently has a Beta of 1.09, exhibits lagging Relative Strength, broke a wedge like topping pattern and knifed through its 50-day Moving Average after a recent event. The two days of pullback after the price shock set the chart up nicely to catch a couple days of residual down side movement if any is present.

As with these patterns, trading them is simple.

I've set a GTC Stop Limit order under the most recent low (33.57). If it doesn't fill today, I'll move it up to the next low. The stop should be set to whatever you're comfortable with, but it should be wide enough so that you aren't taken out by common intra-day noise. I recommend using stops for these patterns as there is a chance of a violent snap back in price if the pattern fails.

In this case, my stop will be 1, ten period ATR or 75 cents.

I also set an initial downside target of one ATR (Average True Range) as a spot where I have the option to roll my stop to break even and begin trailing it. At this point, baring gaps, the least amount of damage is a scratch on the trade.

So to review the trade:

  • Entry is 33.55 (couple pennies below the recent low)
  • Stop is 1 ten period ATR above entry (or 75 cents)
  • Initial target to roll stop to break even is also 1 ATR below entry (32.80)
  • The trade stays in play until the trailing stop is hit.

It's a common, simple pattern, but one that's easy to understand and easy to trade. These "afterglow" patterns also trade well in a bull market as you're picking on weak stocks that nobody wants. The bulls are Egoists and they will dump stocks that under perform or disappoint in a strong market.