Stock Market Violence

Well the financial world didn’t come to end… Phewww. The market bounced after a violent wake up call to complacent bulls yesterday. I won’t be holding many positions overnight in this type of environment. Stay prepared for aftershocks. That move was a signal something is awry.

I’ve got a stock here, STTX - Steel Technologies Inc., that shows why you don’t want to short into news driven events. STTX has been virtually dead until today. The way to trade news related stocks, is just the same as any other trade. Wait for a setup, or trading pattern.

In this case, an excellent buy signal hit, triggered on the 5-minute chart after the first pullback. Trading was then halted about a half hour later for pending news. Was there a signal to short? I don’t see one. Yet, I know some traders sold the stock short. Too bad they don’t use basic charting techniques for their trades.

An entry at the buy signal of 22.49, would give the online stock trade an R = .65. That pending news was good news for those long the stock, and would have provided a 10R profit, had it been held the rest of the day. Not too shabby.