Using Volume to spot reversals
We often see a stock react to news and earning reports, only to move the
other way in a day or so.
I am always fascinated with the reactions to news and earning reports.
Newspapers and magazines like the Wall Street Journal, Barron’s and Investor
’s Business Daily can move markets. The earnings of companies including
Whisper Numbers and The Whisper Numbers of companies can really move a stock
to unsustainable prices.
Let’s look at Checkfree Holdings (NASDAQ: CKFR).
From the chart below you can see the run away gap up moves from April 24,
2000 in the stock.
On Thursday and Friday, we saw a large amount of volume come into the stock
after the company reported a smaller than expected loss pushing it to a high
of almost 60. That is right, just a smaller than expected loss, but still a
loss and the stock rallied.
But what happened after the volume peaked? You've got it! The stock started
moving down.
The stock finished near the low and if it opens down Monday, the new buyers
will all be losers.
If CKFR opens down Monday, I would exit longs.
An aggressive trader may want to short CKFR on any trade below 49 �.
If a Short were entered, I would place a stop at 52 �.
