On-Target Buys During a Big Down Day

Part of the difficulty in approaching a one-directional market is that if you miss the initial move, you might have trouble finding places at which to get in. 

As a technical trader who thrives on buying support and selling resistance, once the horse has charged out of the barn, so to speak, I'm not predisposed to try and lasso up and reign that sucker in. Such was my fate on Wednesday, March 3rd, as a market that sold off heavily on the open, never provided the type of rally that I count on in order to confidently get short. I was wise the previous day in sensing a sell off was in the works, and I made several short sales towards the end of the day that worked out well for me, including a highly profitable one in Facebook (FB), that I discussed in my previous post. But, did I take home any short positions that would have automatically put me on the right side of the market the following day? Absolutely not. I may be smart after all, but I never said I was that smart!

What then is a trader to do, who should be short but isn't? Why, get long, of course! 

One might feel compelled to try and sniff out a buy when the market is tanking, or for that matter look for a short when it's blasting off to the moon. There are bargains to be had at the extremes, and it behooves us to try and spot them, await them, and execute should the opportunity arise. But, buying a cratering market is treacherous to say the very least, as the market will be rife with falling knives; and you know what they say about trying to catch a falling knife. While it might seem like you have little choice but to make counter-directional trades if you don't happen to be with the trend, you must be careful and patient, as heavily trending markets tend to mean business, and you can very easily get overcome by the volatility. Even if it turns out that the easy money happens to be on the other side of the market, you can still get into trades that are more sound than others. An example of solid buy I made on a massive down day could be seen in Target (TGT).

The Trade:

TGT had made an intraday high of 193.58 the previous day, shortly after the open; this coming on he heels of its pre-market earnings report... and then proceeded to immediately tank more than $20 to around 172; a huge and irrational move for a steady big-box retailer. And the earnings were supposedly good! Go figure. 

Using the the Tuesday low of 172 as a point of reference, I bought 500 shares on Wednesday's open at 173.60. I put my stop in right below 173 and I would have been ready to do business again at 172, against the previous day's low. Fortunately, the stop stayed in my back pocket, as TGT rallied to above 176 before falling along with the broader market's downward trajectory, and putting in some work around the lows at 173, by which time I had long covered my position as it was making its way up. Later in the day, TGT traded down to its 172 low from the previous day. With an obvious stop below 172, I bought 300 shares at the double bottom and managed to take $2 out of the position for a second winning trade, buying on a day that trended violently to the downside.

The Rationale:

So what made buying TGT the right move on this down day, especially when I must admit that I got hurt when buying some other things? The fact that TGT made a significant single-day move the day before to recent lows made it an enticing buy and a rather stable one at that, as opposed to other equities which may have still been in the middle of their respective ranges as the market fell. Seeing it put in what could at the very least be a short-term bottom over the course of two days at 172 gave me an easy stop to play against. If TGT had happened to break below 172, I simply would have respected the direction of the market and sat on the sideline, awaiting firmer footing at a lower price.

A trade that I unfortunately missed out on was in Peloton (PTON) at 108. It was similar to TGT in that PTON, which by nature is usually more volatile than TGT is, was coming into a notable price based on a reasonable formation, and coming down from above 155 in mid-February. So, if there was ever a place to take a shot buying on a down day, PTON around 108 was it.

This particular trade however was not meant to be. I had my order in at 108.13, waiting with open arms (and baited breath), only to see PTON hit 108.37 at that point in the day, and almost instantly rally nearly $6!

The Result:

Although PTON actually ended up making a new low on the day after its fierce rally from earlier that morning, it's a shame that I couldn't get anything when it made its initial intraday low at 108.37. That would have been a monstrous win, buying on a day when the whole world's bottom seemed to be falling out. That said, when making counter trades, you sometimes just have to take what you can get; and what I got were two fine trades in TGT, based on a good formation, after it had made a considerable move of its own, and with a small yet clearly defined risk. 

I managed to get a total profit of $800 out of the two trades. Not too shabby for being on the wrong side of the market.

The Takeaway:

It's hard to justify getting long in the market just because you aren't short, or vice versa. But, sometimes you have no choice. There will be days when the market is really moving in one way or the other and for whatever reason, you just can't seem to get in on the direction. It's truly frustrating when that happens. You have no idea how many times I've complained inwardly during a sell off "Oh, why couldn't I just have been short!?"; or "How could I have missed that trade by only a few cents!?" if a stock doesn't get to the price at which I had my order. And, I can't begin to count how many times I've seen that a stock I was long of a few weeks ago had doubled in price, seemingly over night! But, there's no place for self-pity when trading because opportunities abound, even on the opposite side of the market, and getting caught up in your emotions can only distract you from taking advantage of those opportunities. Sometimes, it just takes a little creativity, discretion, and- most of all -patience to make the correct trades. If you find yourself in the position of having to counter trade, then trade small and take quick profits as you try and get a feel for the market. However, there will be an inflection point somewhere in the market where you realize that enough is enough and you have to take a real shot. It may be at a price a bit further away than it would be on a normal day, but know your areas, decide your stops, and be ready! 

Even on my best days, I'm liable to make a dozen mistakes, misreads, and have moments of downright carelessness, all which cost me money. Needless to say if those things can happen on the best of days, they surely will happen on the tougher days as well. But through it all, the right trades will emerge and they can very well end up being the ray of sunshine on a cloudy day.