When stocks gap down more than 5% on news, we call them dumpers.  As we head into earnings season, we will no doubt get many many cases of dumpers that gap down and continue to fall.  The rule on playing these dumpers that continue to sell off is to wait out the first 10-15 minutes to allow the 5 period simple moving average to catch down to the stock’s current trading price.  From that point on, we watch to see if the one and three minute stochastics either bounce through their 20 bands and close a candle above the 3 minufe 5 period ma or reject off the 3 minute 5 period ma to cause the stochastics to fall.  When the stochastics fall, we usually make new lows which causes more panic to come into the stock.

MRVL gapped down over 4 points on 6/27/06 on acquisition dilution news.  The 3 minute 5 period moving average eventually updated to where the stock was trading near 46.39.  MRVL tried to bounce on the 1 minute stochastics at 9:43am but rejected off the 3 minute 5 period ma.  We took shorts at 46.22 at 9:46am using the momentum of the 1 min stochastics slip.  MRVL triggered panic selling and caused leans through 45.90 to LOCK the 45.70 overshoots, out + .52.

The QQQQ’s triggered weekly mini inverse pup slips to the weekly lower bbs at 37.41.  The daily lower bbs sit near 37.10.  With the daily moving averages so tight, the markets can be up hard one day and down the next so it’s best to stick in the intraday.  Earnings season will get underway soon.  Until the third week in July, it’s best to tread water.

Good trading gang!

Feel free to send any questions or comments to jay@undergroundtrader.com