Traders that took last week's profiled bearish play in shares of OSI Systems (NASDAQ:OSIS) $16.75 -5.47% once again find the stock at a key near-term level of support and are looking for a break. Volume remains light and hints that the phones just aren't ringing at the trading desks which will most likely keep a bid firm from market makers here.
At some point, I'd like to see some volume on a daily basis of 500,000 plus, to hint that there is some interest in the stock.
OSI Systems Chart - Daily Interval
Based on the above retracement, I've thought market makers have had a "sell bias" near the $19.00, a "neutral bias" at/near the $15.58 level as they simply provide liquidity to buyers and sellers, while assessing near-term downside at $14.09 where a market maker needs to consider potential selling under bearish circumstances.
As stated before, market makers in NASDAQ stocks MUST PROVIDE LIQUIDITY UNDER ANY MARKET CONDITION. As such, I like using retracement just like a market maker does to assess levels of support and resistance where they provide liquidity to market participants.
Unfortunately for you and I, we can't judge order flow like a market maker is able to. A market maker knows the amount of buy/sell orders he/she receives on a daily basis and gets a much better feel for the stock and pulse of buyer and seller.
However, you and I can put ourselves in the market maker's shoes. Using the point and figure chart, we've calculated the bearish vertical count of $6, and for now, that's a longer-term level of risk that the MARKET is dealing with. Even our retracement from above seems to fit such a price target.
If, and I stress IF, OSIS is going to $6, then a market maker should have a bearish bias toward the stock at $19, rather neutral here at $16.58, and a "buy bias" at $14.09. To sway the market maker to begin lowering his/her bid from $16.58, a bear needs to see some volume come in from sellers, which the market maker would provide liquidity for at the bid.
The only way the market maker provides liquidity at $16.58 without getting sideways in his/her inventory, is if he/she was shorting up near/around $19 (where we've been bearish).
Hang in there, but we still need a break of $16.58 to get a move to our near-term target of $14.09. If volume is light on a move to $14.09, I'd look to lock in some gains. However, if volume picks up on a potential move to $14.09, then look for market makers to take on a "sell bias" at $16.58, and begin assessing further risk to $10.05.
Remember... the act of shorting doesn't drive stock prices lower. It's the act of bull's selling and hitting bids that will drive a stock price lower. The recent 5-session decline in OSIS looks to be market makers slowly stepping off the bid as the stock pulls into retracement support at $16.58. However, if the phone rings at the trading desk and there's a seller at the other end of the line with 100,000 shares, then we should see some volume pick up and get a move lower.
Try using retracement like a market maker would in stocks you're trading on your own. Put yourself in their shoes and use the levels to ascertain risk/reward. Try and get your "levels" to reflect how the stock has been traded as that will give you greater confidence that you're trading the same levels as market makers.