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Traders building on success of "inside day"

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Our greatest rewards come from subscriber e-mail when subscribers begin using some of the techniques we teach in our intra-day updates. While one subscriber notes the "inside day" is rather simplistic, he also notes how impressive and easily understood the near-term supply/demand shift becomes, and how that near-term shift in the supply/demand equation makes for some powerful moves.

XM Satellite Radio Holdings Chart -

Shares of XM Satellite Radio (NASDAQ:XMSR) are off their best levels of the session, but the recent move from the $12.50 level is impressive. There was an "inside day" setup in the stock the day after we first mentioned the stock on December 5th. The "inside day" occurred on 12/06/01. The "inside day" turned bullish on 12/07/01 when the stock traded $12.53 and a trader following the stock with a trailing stop just below the previous day's low would still be long the stock. However, the past two sessions would now have a larger amount of risk present for a bull still long the trade. At this point, a trader long the stock at or above the $12.53 level is assessing risk to Friday's low of $14.20. That would be the stopping point if still following the "inside day" technique of raising your stop to just below the previous day's low. That's too much head for this trader (Jeff Bailey) to take and too much gain to give back. I'd rather use the retracement bracket levels we were using and snug a stop up under the $16.94 level.... say $16.90. I could care less if the stock is going to $20 right now. A trader that bought at or near the $12.53 level is looking at a 34% gain in just 7 sessions worth of trading. For some, that's a years worth of mutual fund gains in just 7 days!

Sirius Satellite Radio Chart -

With the bullishness we were witnessing in shares of XM Satellite Radio (XMSR) we had our eye on shares of Sirius Satellite Radio (NASDAQ:SIRI) on Friday. At $6.11 we noted the stock had just broken above an "inside day" trade setup. I like to play "trends/occurrences" that appear to be repeating themselves and play them until they fail me. Today's additional 26% gain is looking good. A trader bullish near the $6.11 level is only up about $2, but that's a whopping 35% in just two days if bullish at $6.11 with a stop just under retracement at $6.30. The 200- day MA is trending lower and most likely a target for short-term bulls.

Other inside days

One inside day a subscriber sent me in the biotech sector that I liked today is in shares of Abgenix (NASDAQ:ABGX) as bullish above Friday's "inside day" of $30.29-$32.19. Today's trade at $32.20 was a break above this "inside day." A trader playing that move would follow a bullish trade with a stop just under Friday's low of $30.29. I like the trade setup as the 50-day moving average is upward trending and just crossing above the 200-day moving average which is just flattening out at $30.95. I think this is an excellent risk/reward trade for a bull looking for some exposure to the biotech sector. A good strategy for a longer-term bull would be to take 1/2 position long at current levels of $32.48, then add to the position on a break above the recent relative high of $38.16.

Jeff Bailey
Senior Market Technician
Option Investor

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