The rule of thumb is to not ‘chase’ stocks up or down.  Chasing is defined as entering a position on the longside when the 1 minute stochastics are above the 80 bands or taking a short position when the 1 minute stochastics is below the 20 band.  These are usually overbought and oversold levels respectively.  However, the exception to the rule is taking mini pups on these extreme bands on extremely heavy volume within the first 15 minutes of the market open.  These are called hi band and low band mini pups.  They are usually a climactic capitulation move to the lows before a reversal exhaustion attempt.

SNDK was a good example on 6/1/06.  SNDK sold off strongly into the open and attempted to coil off the pivot but failed.  We took shorts on SNDK at 55.30 at 9:35am on the 1 minute stochastics mini inverse pup low band leans.  The heavy volume triggered a strong panic through 55 to lock the 54.90 coil supports, out + .40.  It’s very important to take the scalp profits out on these types of leans before the stochastics eventually bounce back through the 20 bands.

Markets have put in a stubborn base on the dailies.  The QQQQ’s finally channel tightened back through the daily 15s with a potential mini pup.  More importantly the weekly 5 needs to be watched on the upside bounces at at 40.18.  A rejection off there could trigger a weekly mini inverse pup breakdown.  A break through there could trigger a weekly tightening. 

Good trading gang!

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