Last week I wrote about XM Satellite Radio (NASDAQ:XMSR) and liked the stock near the $12 level. Later that day, the company announced it had just completed a secondary offering for 10 million shares and that had us questioning the stock for near- term traders. What eventually happened that day (December 6th) was the stock consolidated and set up an "inside day." We monitored the stock on a daily basis in the market monitor and noticed it had moved higher, mentioning the inside day and that short-term day traders could get back on board at the $12.60 level and follow with a stop under the previous day's low of $12.95. For the past 5 sessions, shares of XMSR have inched higher and not broken the previous sessions low on their way to today's intra-session high of $15.20.
When I first wrote up XM Satellite Radio (XMSR) I also mentioned Sirius Satellite Radio (NASDAQ:SIRI). I've mentioned before how bullishness in one stock can lead to bullishness in another similar sector/business stock. Yesterday, shares of SIRI set up the "inside day" trading pattern and gave the "upside" move today on the break of yesterday's high of $5.97.
Sirius Satellite Radio Chart -
With retracement set from $18.34 to $2.20 I can envision where market makers may have a buy/sell bias. With the stock in the lower end of a retracement range and the stock recently moving higher on some nice volume spikes, I get the feeling of some underlying near-term bullishness. With the action we've witnessed in shares of "like stock" XMSR, the inside day pattern could have been monitored. This morning, I alerted traders to this setup in the market monitor and liked the trade at $6.19, even though the action point should have been on the break above yesterday's high of $5.97. With retracement ahead at $8.38, that may well be a bull's target, but all an "inside day" trader will do is walk his/her stop up under the previous day's low. Right now, a stop would be set just under yesterday's low of $5.75.
A trader/investor could even use the "inside day" trading technique to help them with entry points on swing-trades. There's nothing that says you couldn't use the "inside day" technique to initiate a position, then follow with a 5% stop loss if that's how you like to control risk in your account. Some traders know where to set their stops, but have hard times with "action points" to initiate a trade.
With the NASDAQ-100 bullish % in "bear confirmed" status, these are the kinds of trades I like right now for a bullish trader. The best "inside day" set ups come AFTER a stock makes a meaningful move in a particular direction, then settles in and consolidates. What you're looking for is a "method" to try and benefit near-term from a previous move.
The recent action in SIRI hints of a rather large amount of buying (shorts covering or new bulls) that bought the stock from $3-$6. Stock settled in. Then came back for seconds from $5-$7. Stock settled in. Now "inside day" then move above. Are they back for thirds? This is very much a play on supply/demand. After you look at enough point and figure charts, the actual bar chart starts looking like a supply/demand chart and you start feeling the very short-term buy and sell signals. Very important for short-term traders.
Hint.... if you're a short-term trader that like to trade the inside day and you do get a move one day of 7%, you may not want to keep your stop down below the previous day's low as you would be risking 7%. You may want to sell strength and move on to the next trade, or move your stop up to help assure a 5% profit. With the NASDAQ-100 bullish percent in "bear confirmed" status, a trader is more apt to move stops higher in this example. But when the bullish percent is lower and near 30%, but moving higher each day to 35%, then a trader is more apt to give a stock more room to the previous day's low, even though the stock is making some nice 7% moves each day.
The current market environment will be tough for the short-term options trader. Turning to stock and using the "inside day" trading technique may be a good near-term trading technique to be using.
Don't forget! The inside day trading technique also works well with bearish trades. Just understand the trend and try to figure out where the buyer/sellers are based on retracement and any volume spikes you can find.
I like the inside day trading technique for those just beginning to trade and even for those more experience traders. The reason I like any trading technique is that I can "test" it first. The stock I'm thinking of trading with the technique. How consistent does has it worked with the stock I'm thinking of trading? Are the moves that come after an inside day worth the time? If not, find a different stock where the inside days are more consistent.
Other Inside days!
JC Penney (NYSE:JCP) also set up an inside day yesterday. Actionable today on break above $23.26, stop under yesterday's low of $22.71. Notice rising 200-day moving average at $22.45. Good set up.