Earnings Accumulation After Gap Up - Breakout through Opening Range

Resistance

Jeff Muscatello1-16-13

GS

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Breakout Trade

• Breakouts can occur in a few ways:

o New 52 week highs

o New intraday high

o Through intraday, 2nd day, or daily resistance levels

o Range break (a lot of traders will use the opening range)

• To get in I can play it a variety of ways:

o Pay quickly when the level is broken and play for momentum

o Get in a little before and add when the level breaks (play one to hold with same stop and other as a momentum trade)

• In a successful breakout trade I want to see the speed on the tape pick up, bids step up, volume increase, price move away in a hurry and never come back a.k.a. hold higher.

• Depending on where the protection is below the breakout price, if it does not work right away I might hit out and reassess, or give it a proper stop.

Big Picture

• Big day for financial earnings stocks today with GS and JPM reporting along with a slew of other banks. C reports tomorrow.

• XLF is at a critical level at 17.20 since the recession and is looking to break out fairly soon.

• SPY's gapped down today but rallied all day and closed the day just above 147.00 and basically flat for the day.

• Industrial Production was slightly better than expected today where Housing Market Index was slightly lower than expected.

• This stock and sector were in play today so much of how the market traded today was dictated by what this particular stock and sector did.

• SPY's have not been terribly active lately but are holding their recent gains

• AAPL also rebounded today and closed back above $500. Not in the sector but a big piece of the market

Picture

Intraday Fundamentals

• 7:38:34 - Goldman Sachs Group Q4 EPS of $5.60 vs. $3.66 Est.; Revenue of $9.34B vs. $7.83B Esto Goldman reported a rise in fourth quarter profits. Financial advisory revenue climbed 8.1%

in the quarter.o Its quarterly profit surged to $2.89 billion, from $1.01 billion, in the year ago period.

Earnings per share gained to $5.60 from $1.84o Its revenue climbed 53% to $9.24 billion

• Alibaba Group hired Credit Suisse, Goldman Sachs to handle IPO. Said to be in the $3-4B range

Financial - Investment BankATR: 2.64SF: 1.23%Ave Vol: 4.14mil

Technical Analysis

• LT strong stock and has been breaking out of shorter term levels for the past 2 months. Seems slightly over extended at the levels on the daily chart but with catalysts like these it can certainly go up. XLF is at potential break out level and the sector has been showing great relative strength compared to the SPY's as of late.

• Today gapped up above the recent few day consolidation• Pre market was strong but could not hold over 139.00• It had an opening drive down but was bought off the bottom and powered

through the opening highs where it began to hold. This was the key sign of strength for me.

• The rest of the attempts to hold underneath VWAP were quickly bought up.• Found resistance from the premarket at 139.50 into the morning before

breaking out through there

Long Term Picture

Intermediate Picture

Short Term Picture

Trade Review

• What was the psychology behind the move? Strong technical stock mixes with strong fundamental news. Long term this is a name that people want and it showed by holding its gap up and little profit taking throughout the day. The aggressive buying off the 138.00 level, the bottom, through the highs was the strong signal for me on top of its gap up.

• What is the pattern/s that I need to remember? Strong buying in premarket, sell off on the open so the big money can get in at their prices and then an explosion off the bottom through the open highs (this is the sign of strength for the day). Consolidation and failure to hold below VWAP. Add when intraday resistance is broken.

• How did I do? Watched every tick on this starting in the pre-market and this was my focus and A+ setup for the day therefore I gave it the appropriate daily risk. It was difficult for me to stay in this and after getting slipped I had risked more than I had intended and did not leave myself enough room to feel comfortable playing the breakout. Should have captured more profit in the premarket and lightened up before the opening bell and managed my risk better during the day to give myself a better chance of capturing the high probability move. Need to make sure im not micro managing too much in the middle of the day and giving the stock the respect it deserves to make the big move. Idea was there just weak execution. Trade management is the key to making sure i am able to play the high probability move.

Trade Idea

• Going to have to play it by ear with C reporting tomorrow.

• Potential pullback to 140.00 and 139.50** would be potential support areas to get feelers on for some continuation.

• Will also be using the 2 day VWAP as an indicator of which support areas might offer the best entry.

ALERTS: 141.50, 140.00, 139.50***, 138.50***, 138.00

Going ForwardBeing at the very beginning of earnings season, I am likely to come across a good

amount of setups similar to this one today

• Things I would do the same that are worth a trade:o playing for an opening drive on a super strong stock technically and

fundamentally trading above all recent levelso playing for a failed break down if it presents itself - really like the psychology of

these playso look for a breakout from an opening range after holding opening move and

accumulation

• Things I would do differently:o I think getting in a little before the big move can be helpful to improve average

price and confidence on paying the break but keep it smaller until can define risk better with in my own risk parameters

o Was trying to build too big of a position before the break; can wait and pay for more and play those added lots tighter. Had I been more patient, the stock offered very easy low risk opportunity to get in before the break

o Just because I watched every tick since the premarket and have developed a feel for the stock and a bias for what it might do, need to maintain a sniper's mentality and let the opportunities come to me and be ready to jump on it instead of fighting it

o Play for the high probability portion of the trade (the breakout above 139.50) and not catching the entire move