Since You Asked
Professional trader Don Bright of Bright Trading (www.stocktrading.com), an equity trading corporation, answers a few of your questions.
Don Bright of Bright Trading
I have a question about stocks with news out pre-opening. Some say to avoid any stocks with news out; others say it depends what the news is. Regarding, say, earnings guidance announcements, I've seen times when a stock opens down two points on negative news - and that's the high trade of the day. Then it goes down two more points. Other times a stock opens down two and then shoots right back up. These are dramatically different results, if you buy on the opening, and you obviously don't know in advance which of these scenarios will occur. How does this issue relate to the opening order strategy? - Oz Cillator
This is a very subjective question. I am not overly concerned when I see an imbalanced number (pre-open indication), but adjust my bid/offer accordingly. This is a game of consistency, and since we put in 20 orders every morning, keeping or deleting one due to news shouldn't make a big difference.
These sort of situations can cause us all to say to ourselves, "If I only woulda stayed in, I woulda made money," or "I knew the earnings were out, how could I be so stupid?" There isn't really much useful advice I can give you there. I, personally, keep most of the orders in, and just adjust prices.
FOLLOWUP TO OPENING ORDERS
Thanks for your comments. Here's another problem I see: Say you're executed on an order and are now long a stock that opened down $1. The stock immediately trades 30 cents lower with nary an uptick. Now I've read your posts before where you warn about "shakeout"" and suggest hanging on for the rebound. But without a crystal ball, how can you know when it's a shakeout and when the selling is real and serious (like points more to go on the downside)? At other times you seem to recommend cutting your losses and "getting back in the trade at a better price." Could you please address what seems to be a contradiction? Thanks -Oz Cillator
The primary thing to remember when doing these opening-only orders is that the NYSE specialist will be on the same side as you. This generally means that we should be able to get out with a profit. Sometimes, we can get stuck. Then we have to "tape-read" the overall market, sector, stock itself, and the size of the trades taking place (to figure out who is selling and who is buying).
At this point, we have to make our best educated guess whether we can get back in at a better price, bite the bullet, close, and be prepared to actually get back in. We're shooting for an 80% batting average here, not 100% - right?
Again, I wish there was a definitive answer, but as in all of trading, there isn't.
NYSE OPEN PRINT
I remember reading somewhere that someone was able to get filled on an opening order entered seconds after the NYSE open print. Please correct me if I am wrong. Thanks -Anonymous
By definition, the opening only order means the opening print. There are only two times during the day there is a single stock price on the NYSE: the open and the close (market on close orders).
You can, however, place an opening order after the overall market has opened, but your specific stock has not. Perhaps that is what you are thinking about.
A trading week is made up of five days. If the week is shortened to one day for whatever reason, should that one day be taken as a whole week when plotting data for a weekly chart? Thank you and regards -Syed Rehan Ali
As with most analysis, you can get as specific as you like. Since we use end-of-day data, you would probably have a slightly different number if you used every five days instead of every Friday so as to not skew the data based on other influences (as seasonality and the like). My personal feeling is that there will always be some slippage anyway, so don't get too bogged down in the minutiae. Good luck!
I have been out of commission for a while and I am now seeing something I don't quite understand. Regarding Standard & Poor's fair values as found at ProgramTrading.com, did something change in how this number is calculated? I have been seeing negative numbers recently. I thought this wasn't possible. I also checked past values at AllStocks.com and saw values in past years much higher (as high as $17/18) than I was accustomed to seeing. Are the numbers I'm seeing correct? Does it have something to do with the decline in interest rates over time? Could you please enlighten me? Thanks -MGB
In this time of extremely low interest rates, we must remember the other part of the fair value equation: dividends. If the dividends outweigh the interest, then fair value can go to a negative.
E-mail your questions for Bright to Editor@Traders.com, with the subject line direct to "Don Bright Question."
Originally published in the September 2003 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2003, Technical Analysis, Inc.
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