Playing oversold tightening stocks

When stocks gap down, we like to play the channel tightening bounces.  The rules however must be adhered to carefully.  First thing that has to base on the 3 minute chart is the lower bollinger bands.  Once that is based then watch the 1 minute stochastics for a bounce back through 20 bands for a longside entry trigger.  When the 3 minute stochastics crosses back up, this assures the channel tightening bounce to target the 3 minute 15 period moving average into the 1 minute full stochastics oscillations.

On May 17^th, we played PEIX long off the gap down.  Once the 1 min stochastics bounced, we saw PEIX bounce through the 3 min lower bbs at 33.85 and then saw it bounce thru 3 min 5 at 34.10.  We took the longs on the 1 min mini pup trigger at 34.75 at 9:49am above the stinky 5s coil resistance 34.60.  The 1 min mini pup squeezed up to the 3 min 5 at 35.40 to LOCK overshoots on the 1 min HI band mini pup, out + .65.

The markets have been in a NASTY selloff.  Noodles tried to base again off the daily lower bbs but leaned down hard almost 30 points below the daily lower Bollinger bands.  This is not an ordinary distribution.  Be very careful.  While markets are oversold short term, its gonna take many many sessions to base.  Be careful in the sense that it will mean long periods of the 8/13 min flat action to put in a base.

The path of least resistance on FLATNESS is to be FLAT. 

Good trading gang!

Jea Yu

Jea Yu has been involved with the equities markets for over 10-years. He specializes with intraday trading in the U.S. equities and futures markets. To receive a free 7 day trial to Jea Yu's Underground Trading Pit, click here or call 888.484.8220, ext. 1.