DummySpots.com

Here we are, the morning after Google, after Greenspan, after State of the Union. What now? The nicest play would have been to get short off of the “nr19“ bar I mentioned yesterday:

The volume on the Qs was not fading as I like to see with a pullback (in this case, a pullback into a downtrend), otherwise I’d pronounce this a daily-bar Dummy Spot. Still, I’d have no problem going short off of it with such a nice tight stop. With a high of 42.32 and a low (sell trigger point) of 42.07, that trade would have given an “R,” or initial risk, of only 25 cents. Risking $200 would mean shorting 800 shares, or close to $34,000 worth of stock (BTW, I always use risk to determine position sizing, more on that in a separate article).

With that trade, one would look pretty smart right about now (Wednesday AM, 2/1). However, that setup is only a slam-dunk in hindsight,and if looking back were worth anything, we’d all be rich. I did NOT take the trade, and was sidelined waiting for all the potential “events” to get out of the way.

For me, the way to play the “Great Google Breakdown Setup” this morning is to use the gap to trade a liquid Nasdaq stock (I personally won’t touch Google today), for example: if the Qs gap down, then immediately begin to rise, you could anticipate a spike at 10:00EST, and short the downward break of the highest 10min or 15min bar, with its top as a stop.

If the market gaps low and continues lower, it’s the old “catching a falling knife” routine, and will be hard to get a good setup today. By good setup, I mean a clearly defined, low-risk entry point with an obvious tight stop.

Should be fun. Cheers and good luck.