Ringers:
I've read the last 50 posts on this thread, so I still have about 500 to go, but I hoped to get my rite of passage taken care of. (Email coming your way Ken). Hope I'm not being redundant with any earlier posts.
"Ringing" is a phenomenon known to any good engineer when something overshoots it's "steady" value, oscillates with decreasing amplitude and finally settles in. What does that have to do with stocks??!! Stock prices do it often, with huge volume, on over reaction to news. The short open strategy discussed in some earlier posts takes advantage of this on up openings. I've had some success (on paper only so far) with stocks that gap down.
There seems to be two types of behavior: 1) price is already below the steady price at open and quickly rises, and 2) price is still falling rapidly; of the 2nd, some just bottom out eventually (hours to days) and some turn sharply upward. Both types can ring for a while before settling. If you can find such an animal, and quickly identify the type, you can grab some nice gains on the first up move, and some more on the first down move. Wish I could predict which type before the fact, but so far I can't.
Last week, on 2/12/98, CYTC gapped open down $6 1/2 at about $20, slipped about $1/8 and held for about 5 minutes. At 9:34 I was satisfied it wasn't falling and "bought" it at $20. At 9:43 I got shaken out at $21 1/16, back in at $21 3/8 at 9:45, and out again $21 1/2 at 9:47. A few minutes later it peaked at $22 and started turning down. I shorted on an uptick at $21 1/8 at 9:59 and covered at $20 1/2 at 10:22, but the price kept going down almost to $20 again, then moved more slowly toward $21. A net of $1 13/16 (less commissions, of course) in less than an hour, and I left about that much on the table. After it was all over, I found the news of a report on the "modest improvement" from using CYTC's pap smear test. Price shot up in late afternoon, probably because of company rebuttal of the report.
Stocks that gap down and are still falling can be caught on the upturn, and then the down with similar success. As always, you have to trade what is really there, not what you think is going to happen. Get out quickly if it's not going your way. You need a way of finding these things before the open to take advantage. I had the luxury of a workstation that scans market maker activity before the bell, but you can also get wind of them from CNBC Instinet activity reports. Hope to try a few of these live before too long.
Dan |
