Clouds Lifting Over VMW
07/06/2010 10:12 am EST
New readers often ask me, "What is a Red Dog reversal?" This is a low-risk, high-reward calculated strategy we use in a very oversold or overbought environment, and it’s a way to catch a countertrend cash flow trade with a plan.
VMW has been our “go-to” stock of the year. This company is leading the way in cloud computing ideation and implementation, and we have always looked for pull-ins to buy. For the most part, that strategy with this hot stock has been rewarded as it has repeatedly led the market to new highs. The stock just got hit hard with the market, and the high was 73.10 on June 21.
Yesterday, the stock was trading into support in the 62 area, so it was worth a look for a bounce. The strategy triggered when stock traded through 62.27 on its way to new lows.
It then went to 61.17. When VMW came back up through the previous low is when you buy! Buy price is 62.27 with a stop at the low of the day. That’s 1.10 risk, a calculated risk on a stock that just pulled in over ten points.
VMW closed at 63.88. If you just wanted a daytrade, you sold the close and made around 1.60. If you do hold, you trail it with proper stops. The quick trader will also add above the high of yesterday, which is 63.88, and then look for bounce to continue to prior support, which is now resistance around 65.50-66.50.
By Scott Redler, trader, T3Live.com